The amount of generating capacity waiting to interconnect to the U.S. electric grid grew 40% year-over-year in 2022. According to a report published by experts at the Lawrence Berkeley National Laboratory, that increase brought the total amount of pending projects to nearly 1400 gigawatts—enough untapped energy to power 130,000 homes for a year.

And backlogs are getting worse in interconnection queues across the country. In 2015, the average power plant waited less than two years for approval to interconnect; by 2022, that wait time had doubled. Furthermore, the Inflation Reduction Act (IRA) has spurred even greater investment in the development of clean energy projects over the past year. With no end to development in sight, early moving grid operators had begun to adopt piecemeal reforms that were designed to reduce backlogs. In response to these market conditions, the Federal Energy Regulatory Commission (FERC) announced over the summer that it would require grid operators to implement a suite of reforms to their interconnection procedures to tackle these problems in a more uniform manner.

In early September, FERC published Order No. 2023—a final rule intended “to address interconnection queue backlogs, improve certainty, and prevent undue discrimination for new technologies.” The final rule requires all public utilities to adopt revised standard generator interconnection procedures and agreements.

In a presentation of the final rule to FERC’s Commissioners and the public, FERC staff explained that the reforms required by the rule are designed to ensure that new generation resources can connect to the grid more efficiently. To improve efficiency, Order No. 2023 requires all transmission providers under FERC’s jurisdiction to use a “cluster study” process. Cluster studies allow grid operators to evaluate the impact that a group of new generation projects will have on the existing transmission system collectively, rather than evaluating impacts on a project-by-project basis. The final rule also requires grid operators to collect more money as collateral from projects developers than current rules compel. To improve the timely completion of interconnection studies, Order No. 2023 imposes strict study deadlines on grid operators and sets out sizeable financial penalties for failing to meet those deadlines.

The final rule received unanimous support from the Commission. FERC Chairman Willie Phillips emphasized that the nation’s “transmission policies must keep pace with the rapid changes in the makeup of our power generation resource mix,” calling the rule “an important milestone” in that process. Commissioner Allison Clements concurred, explaining that the final rule will “widely extend proven best practices to utilities around the country.”

Commissioner Mark Christie agreed, adding that the final rule represents “major progress” toward allowing commercially viable projects to move forward more quickly. And even Commissioner James Danly, known for his sometimes-sharp dissents, took a more moderate tack, explaining that he was satisfied that the final rule conformed with the Commission’s legal obligations.

Both Commissioner Christie and Commissioner Clements emphasized that although Order No. 2023 represents a major improvement in generator interconnection policy, more work remains. For example, Commissioner Christie focused his concurring statement on cost allocation issues, explaining how he would divide the costs of interconnection studies among multiple transmission owners and also questioning how grid operators would ultimately pass certain assigned costs through to their customers. Commissioner Clements called for grid operators to link improvements to the interconnection study process with the development of a more holistic understanding of transmission system needs. And both Commissioners highlighted that grid-enhancing technologies should be used more frequently to maximize use of existing grid infrastructure.

Industry groups reacted positively, if cautiously, to initial news of the final rule. Experts from the Rocky Mountain Institute, a nonprofit organization working to accelerate the clean energy transition, hailed the rule as “an important step in the right direction,” but noted that queue backlogs persist, even in regions of the country that have already adopted procedures that resemble the new reforms. The Edison Electric Institute, a trade organization that represents many of the nation’s investor-owned utilities, expressed measured optimism about the rule, noting that its utility members would “lead the charge” in ensuring that new electric generation could connect to the grid safely and efficiently.

In addition, commenters broadly agree: the reforms required by Order No. 2023 arrived not a moment too soon. As Tony Clark, a former FERC commissioner and former Chairman of the North Dakota Public Service Commission, remarked, the IRA subsidies are “pouring jet fuel on that raging queue fire.” If interconnection reforms were needed before the passage of the IRA, these changes are doubly necessary now that generous subsidies have accelerated the pace of clean energy project development.

In recognition of the urgent need for reform, FERC set an ambitious timeline for transmission owners to comply with the rule. Order No. 2023’s publication started a countdown clock: the rule becomes effective on November 6, 2023, with compliance filings due 90 days after that. Although achieving full compliance may require grid operators to submit several rounds of reform proposals, they can begin filing as early as December 2023. Once approved, these reforms could bring needed relief to projects waiting for the green light to interconnect.

This term, the U.S. Supreme Court will hear SEC v. Jarkesy and decide whether the Constitution requires agencies to use biased judges to adjudicate cases.

As background, the U.S. Securities and Exchange Commission (SEC) brought an enforcement action over a decade ago against an investment advisor named George Jarkesy. An SEC administrative law judge (ALJ) then determined that Jarkesy had committed securities fraud. Jarkesy persuaded the U.S. Court of Appeals for the Fifth Circuit to hold that the SEC decision was unconstitutional because the ALJ who presided over the hearing in his case could only be removed “for cause.” The U.S. Supreme Court now must decide whether to uphold the SEC’s decision or the Fifth Circuit’s.

As Alan Morrison points out, Jarkesy’s sole interest is to avoid the adverse effects of the SEC’s decision on him. He has no interest in the adverse effect of a Supreme Court decision in his favor on the millions of other people who adjudicate cases before agencies every year. The Supreme Court should care about that latter effect, but it is not clear that it will even consider it in the process of deciding the case.

A decision in favor of Jarkesy would force every agency that conducts adjudications to use judges who are biased against the private parties who appear before them. Understanding why this is so requires reviewing an important chapter in the history of administrative law.

In the 1930s, private parties who participated in hearings conducted by agencies complained that the judges who presided over agency hearings were biased against them and in favor of the agency where the judges presided. Some studies at the time supported the widespread complaints of bias.

After many years of study and debate, Congress responded to those complaints in 1946 by enacting the Administrative Procedure Act (APA). The APA includes five provisions that assure that agencies cannot use managerial tools to induce one important class of agency adjudicators—ALJs—to conduct hearings in ways that favor the agency. Agencies can play no role in determining an ALJ’s compensation; they must assign cases to each ALJ in rotation; they cannot assign an ALJ responsibilities inconsistent with their roles as adjudicators; they cannot subject an ALJ to supervision by any agency employee who engages in investigation or enforcement; and, most importantly, agencies cannot remove or otherwise discipline an ALJ except for cause as determined by the U.S. Merit Systems Protection Board after a formal hearing.

In its decision in Jarkesy, the Fifth Circuit relied on the Supreme Court’s opinion in Free Enterprise Fund v. Public Company Accounting Oversight Board as the basis for its holding that the for-cause limit on the power of the SEC to remove an ALJ is unconstitutional. In Free Enterprise Fund, the Supreme Court held that it is unconstitutional for Congress to provide two layers of for-cause insulation between the President and an officer who has the power to make policy decisions on behalf of the United States. The Court went on to hold that the for-cause limit on the SEC’s power to remove Public Company Accounting Oversight Board members was unconstitutional.

The Supreme Court’s decision in Free Enterprise Fund does not support the Fifth Circuit’s decision to force all parties to agency adjudications to have their cases adjudicated by biased decision-makers. In its opinion in Free Enterprise Fund, the Court specifically reserved the issue of the validity of the for-cause limit on the power of an agency to remove an ALJ for sound reasons.

ALJs are easy to distinguish from the Board members whose tenure was challenged in Free Enterprise Fund. The Board members are policymakers, while ALJs perform solely adjudicative functions and have no power to make policy decisions.

When Congress enacted the APA, it included two provisions that ensure that agencies retain complete control over the legal basis and policy content of any decision in an adjudication. First, it recognized that agencies have the power to make rules that bind ALJs. Second, it conferred on agencies the authority to substitute their decisions for those of ALJs.

ALJs are analogous to the members of the War Claims Commission who were the subject of the Supreme Court’s opinion in Wiener v. United States. The Court held that the members of the Commission could not be removed except for cause because they performed solely adjudicative functions. The analogy between the Commission members in Wiener and ALJs is so compelling that the Court would have to overrule Wiener to hold that the for-cause limit on the power to remove an ALJ is unconstitutional.

If the Supreme Court decides that it must eliminate one layer of for-cause protection to enforce its decision in Free Enterprise Fund, it has a choice. It can either overrule Wiener or hold that the members of the SEC can be removed by the President without stating a cause. That should be an easy decision to make for two reasons.

First, there is no statutory for-cause limit on the power of the President to remove an SEC Commissioner. That limit was only implied by the Court in Free Enterprise Fund. By contrast, Congress explicitly prohibited an agency from removing an ALJ except for cause when it enacted the APA.

Second, like the members of the Board at issue in Free Enterprise Fund, SEC members have the power to make policy decisions on behalf of the United States. By contrast, ALJs are like the members of the War Claims Commission at the heart of Wiener. ALJs have only the power to preside in adjudications and no power to make any policy decision. Their insulation from removal by the SEC except for cause does not impair the President’s power to take care that the law is faithfully executed. Instead, it protects the due process rights of parties who adjudicate cases at agencies.

The Supreme Court should reject the Fifth Circuit’s decision and make it clear that the Constitution does not require biased administrative judges. On the contrary, due process under the Constitution requires neutral, unbiased administrative adjudicators.

The U.S. Supreme Court is set to review the U.S. Court of Appeals for the Fifth Circuit’s decision in Jarkesy v. SEC, which held that the U.S. Securities and Exchange Commission’s (SEC) proceeding against Jarkesy and his company for possible securities fraud violated the Constitution in three separate ways.

One of those potential violations was that the administrative law judge (ALJ) who heard Jarkesy’s case could only be removed from her position “for cause.” The Fifth Circuit concluded that this removal protection interfered with the ability of the President under Article II of the U.S. Constitution to take care that the laws be faithfully executed or, in non-legal language, to supervise the policymaking activities of the executive branch.

The Court will assess the legal arguments on both sides. But the controversy invites a different question: Who wants ALJs to be able to be removed from office at will, instead of requiring that good cause exist for taking adverse action against them? To be clear, removal at will would mean that an ALJ could be fired by the agency for which they work either because their superiors disagreed with a decision they made, or for what would otherwise be an impermissibly discriminatory reason, or for no reason at all.

The easy answer in the Jarkesy case is that Jarkesy wants removal protection for ALJs to be determined to be unconstitutional because a favorable ruling will overturn ALJ orders that barred him from the investment business, assessed civil penalties against him, and required him to disgorge hundreds of thousands dollars of what the SEC claims are wrongful gains. A victory would void the adverse orders against him and give him another chance to defend himself.

But what about all of the rest of the businesses and individuals who have SEC cases pending against them? Would they prefer to have their cases decided by ALJs who are relatively independent and call the cases as they see them? Or would they like to have ALJs who are looking over their shoulders and thinking about whether a ruling against the SEC might cost them their jobs?

The legislative history of the Administrative Procedure Act, which introduced the for-cause removal protection for ALJs, reveals that its purpose was to ensure that ALJs were not biased in favor of the agency that employed them. It did so by preventing an agency from taking adverse personnel actions against ALJs unless there was good cause, which was sustained by what is now the independent U.S. Merit Systems Protection Board. The problem for agency adjudications is that the agency both initiates—or prosecutes—the proceeding and, ultimately, determines the outcome. Assuming that this dual functioning will continue, Congress likely was correct that regulated parties will generally be treated more fairly with an ALJ who has for-cause protection than one who is serving at will, which is contrary to what the Fifth Circuit held.

Perhaps it is the President who cares. The Fifth Circuit invoked the President’s position and “take care” duty in holding that the SEC’s limits on ALJ removal were unconstitutional. It is doubtful, however, that any President knows or cares what an ALJ at the SEC is doing, such that he would want to have the power—and hence the responsibility—to remove them if the judge acts unwisely or even does not comply fully with the law.

There is an even stronger reason why the President, as head of the executive branch, does not care about this issue: Under the applicable statutes, it is not the President, but the head of the agency, who has the authority to fire an ALJ. Indeed, in the case on which the Fifth Circuit relied, Free Enterprise Fund v. Public Company Accounting Oversight Board, the Court determined that the appropriate remedy to correct the agency’s unconstitutional for-cause removal restriction was still to follow the statute that gave the SEC the removal power, but to do so by excising the for-cause limitation. No statute of which I am aware gives a President any role in ALJ removal, and so a victory would not augment presidential powers, except in the most indirect way.

Although the Biden Administration is defending ALJ independence, the Trump Administration took the opposite position in Lucia v. SEC. The issue on which the Supreme Court granted review in Lucia was whether ALJs at the SEC are employees or “inferior officers” under the Appointments Clause of the U.S. Constitution. If, as the Court held, ALJs are inferior officers, then they must be appointed by the agency itself, and not by agency staff, as had been the practice. Going forward, that change had little practical significance, but its determined non-compliance with the Appointments Clause did require the SEC to redo the proceeding against Lucia. The Trump Administration sided with Lucia, but also went even further and asked the Court to rule on the removal issue that is now pending in Jarkesy. The Court declined to decide the question about for-cause removal projection in that case.

The motive of the Trump Administration in taking that position is not clear, but an educated guess is that it was part of a goal of the proponents of the unitary executive theory, many of whom held high-level positions in the Trump Justice Department, to overturn the for-cause removal protections upheld in Humphrey’s Executor v. United States. That goal is understandable because it would give all incoming Presidents the opportunity to replace any agency head, including members of multi-member bodies such as the SEC, with a person of their choice―assuming that they can get them confirmed by the Senate. Even then, a further barrier exists: The statutes governing many agencies limit the number of members of the agency that belong to each political party, and so firing an existing commissioner may result in an agency without a quorum, rather than one ready to do the President’s bidding. Perhaps the Trump Administration thus saw the elimination of restrictions on ALJ removals as a first step toward the larger goal.

There is one other reason why some administrations, as well as others concerned about the process of administrative adjudication, might want to eliminate or at least modify for-cause protection for ALJs. Most of the ALJs today—about 1,500—work at the Social Security Administration, which is a benefits agency, not a regulator. Because of that difference, the notion of pro-agency bias, which prompted Congress to provide ALJs with for-cause protection, is much less of a problem in most adjudications, although some administrations are less pro-claimant than others as a matter of policy, while staying within the law.

There is, however, another problem at the Social Security Administration: supposed variability among ALJs. For example, some ALJs are alleged to be much less productive than average and some seem to be either much more or much less favorable to claimants generally. Critics of for-cause removal rules argue that these rules prevent agency officials from instituting many corrective measures. Regardless of whether those concerns are valid, the elimination of for-cause removal for ALJs working for regulatory agencies such as the SEC is a vast overkill and would not solve that problem.

Finally, many of those who advocate the end of for-cause protection for ALJs are, ironically, the same people who object to the power of regulatory agencies generally. Thus, their support for sustaining the removal portion of the Fifth Circuit’s decision in Jarkesy would be to increase the power of agency heads at the expense of the individuals and companies that they regulate—an impact that perhaps undermines their broader deregulatory agenda.

What do businesses in the gig economy owe the workers they rely on? Next month, the U.S. Department of Labor may provide a new rule addressing this question, but the “right” answer is a subject of intense disagreement.

In 2021, the Trump Administration issued a new rule restricting who qualifies as an employee. Although the Labor Department attempted to rescind those rules after President Joe R. Biden took office, a federal court allowed the changes to take effect. Last year, the Labor Department proposed a new rule that would broaden who qualifies as an employee. Some commentators expect the rule to be finalized next month.

Under U.S. employment law as it currently stands, workers are generally classified as either employees or independent contractors. This distinction gained relevancy during the New Deal era when legislation such as the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) established workers’ rights to minimum wages, benefits, and collective bargaining. At that time, statutory benefits mandates were based on employment status because few independent contractors existed. Congress later excluded independent contractors from the NLRA’s collective bargaining guarantee, putting contractors who engage in union organizing at risk of violating antitrust law. And under the rules implemented by the Trump Administration, most independent contractors still do not receive wage and hour protections under the FLSA.

Since then, the number of gig workers—workers not classified as “employees”—has grown substantially. One study found that in 2018, around one-third of all American workers performed at least some gig work each year. Two-thirds of major companies now report using freelance contract workers, and the number of workers reporting non-employment income related to gig work tripled between 2017 and 2021.

Commentators are divided on how well the gig economy serves workers. Proponents of classifying gig workers as independent contractors claim that doing so benefits workers and employers by increasing work flexibility and saving money on labor costs. These commentators also support the view that most gig workers simply want to supplement their primary income. For example, the CATO Institute reports that the average gig worker in a recent survey earned $52,000 per year and had both primary and secondary incomes.

Critics respond that averaging wages among gig workers can conceal substantial differences when such averages encompass professional athletes, medical professionals, and Uber drivers. For example, the same CATO study mentioned above found that one-third of gig workers earn less than $10,000 annually. ADP Research Institute agrees that there are “two worlds” of gig workers, divided largely along lines of educational attainment. Others have found that half of independent contractors consider their gig work important to their financial well-being.

Observers who support classifying gig workers as employees argue that the current paradigm deprives some workers of control over their work lives. Some evidence shows that the current arrangement also discourages the growth of gig economy companies such as Uber and TaskRabbit. As an alternative, some scholars have called for establishing new categories of employment. Others suggest that regulators should look to foreign jurisdictions for guidance.

In this week’s Saturday Seminar, scholars discuss the complexity of gig workers’ employment classification and its economic implications.

• In a San Diego Law Review article, Orly Lobel of the University of San Diego School of Law argues that certain employment and labor protections should extend to all workers classified as “non-employees,” such as gig workers and freelancers. Lobel contends that the United States’ social welfare system should not be so linked to employment, noting that the COVID-19 pandemic exposed the irrationalities of a rigid employment classification system. She observes that the question of employee status has been litigated for decades, resulting in a patchwork of classification laws across states. Lobel proposes systemic reforms, such as delinking social welfare from work and expanding employment rights beyond the classification system to “anyone who provides their labor.”
• In a recent article in the University of Missouri School of Law’s Journal of Dispute Resolution, practitioners Joshua Javits and Matthew L. Luby argue that the sports and entertainment industries offer a potential hybrid employment model for workers in the gig economy. Javits and Luby explain that professional athletes and Hollywood entertainers are typically independent contractors who work under contracts negotiated by intermediaries. These contracts usually provide minimum benefits but leave other provisions open for further negotiation by workers with distinct needs or talents. Javits and Luby argue that gig workers should receive similar exemptions to negotiate beneficial arrangements.
• In an article for the Cornell Law Review Online, Open Markets Institute researchers Brian Callaci and Sandeep Vaheesan urge the Federal Trade Commission to limit the use of vertical restraints—contracts that companies use to control the business decisions of their trading partners. Callaci and Vaheesan contend that vertical restraints enable companies to misclassify their de facto employees as independent contractors while subjecting them to employer-level control. Callaci and Vaheesan argue that vertical restraints also allow employers to benefit from control over employees with few accompanying employment law obligations. Both arrangements create fissured workplaces, which Callaci and Vaheesan claim permit companies to control workers’ wages and conditions without providing benefits or taking legal responsibility as employers.
• In an article for The Brookings Institution, David Kiron of the MIT Sloan Management Review, Elizabeth J. Altman of the University of Massachusetts Lowell, and Christoph Riedl of Northeastern University argue that artificial intelligence is impacting the development of corporate governance structures in both beneficial and problematic ways. Kiron, Altman, and Riedl suggest that artificial intelligence has enabled the emergence of workforce ecosystems, which they define as structures including employees and an extended workforce—including gig workers—serving the organization’s goals. They contend that this shift contributes to the growing wealth gap between employees and independent contractors. Accordingly, Kiron, Altman, and Riedl argue that decision-makers should develop policies that permit innovation while also protecting workers’ rights.
• Veena Dubal of University of California College of Law San Francisco argues that data collection and automated decision-making systems have produced algorithmic wage discrimination in on-demand work. In a recent paper, Dubal explains that companies such as Uber use data on location, driver behavior, demand, and other factors to personalize wages and allocate work. Dubal points out that, because workers lack access to information that determines their hourly rates, they have little recourse to remedy pay discrepancies. The author also cites a study coauthored by Uber’s former chief economist finding that women driving for Uber earn less than men. In this way, Dubal claims that wage opacity and variability lead drivers to earn less than they expect.
• Despite talk of economic liberty, gig workers are increasingly subject to a new form of forced labor, argues Rebecca E. Zietlow of the University of Toledo College of Law, in a recent article in the Wake Forest Law Review. Zietlow contends that without realistic options to leave or alter their working conditions, undocumented workers and low-wage workers—including those in the gig economy—are forced into a kind of involuntary labor. In response, she calls on lawmakers to protect workers’ rights by enforcing laws against economic coercion, reclassifying independent contractors, and expanding social safety nets.

IN THE NEWS

• California Governor Gavin Newsom signed two bills into law banning people from carrying firearms in public places and raising taxes on guns and ammunition sold in the state. The first law bans people from carrying guns in public parks and playgrounds, banks, and “any other privately owned commercial establishment that is open to the public,” unless expressly allowed by the owner of the premises. The second law adds an 11 percent tax to the existing federal gun tax, effectively doubling it. The California Rifle and Pistol Association called the new laws “unconstitutional” and filed a preemptive lawsuit to stop them from taking effect.
• The Office of Child Support Services at the U.S. Department of Health and Human Services proposed a rule to replace the term “paternity” with the gender-neutral term “parentage” throughout the Child Support Services Program. This proposed rule would allow states to establish child support orders against the parent responsible for child support, regardless of that parent’s gender or sexuality. The Office emphasized that this change is needed in light of the landmark Obergefell v. Hodges ruling and the Respect for Marriage Act of 2022, asserting that the establishment of parentage under the law should be inclusive of all family structures.
• The U.S. Department of Veterans Affairs proposed a rule to modify its regulations related to veteran burial benefits to conform to recently enacted statutory standards. Under the proposed rule, the transportation benefit would cover the transportation of veterans’ remains to “covered veterans cemeteries.” The proposed rule would also expand the definition of eligible cemeteries to include both tribal-owned and state-owned cemeteries. Finally, the proposed rule would provide a single payable allowance for all non-service-connected burials, instead of having different allowances depending on the location of death.
• The Consumer Financial Protection Bureau began a rulemaking process to remove medical bills from credit reports. Until now, creditors used medical data in credit decisions even though research has shown that medical debt does not reflect a borrower’s ability to make repayments. The agency stated that the proposed changes will stop coercive debt-collecting practices and financially “empower” the nearly 20 percent of Americans who carry medical debt.
• The U.S. Department of Commerce issued a final rule preventing the improper use of CHIPS Act funding, which aims to restore U.S. leadership in semiconductor manufacturing and innovation by providing grants and loans. The rule prevents the funding from being used to directly or indirectly benefit countries “engaged in conduct that is detrimental to the national security or foreign policy of the United States.” The rule also limits the ability of beneficiaries to invest in new manufacturing in foreign countries of concern but allows those beneficiaries to continue operations in these countries under certain conditions. Beneficiaries that violate these conditions may be required to return their federal funding.
• The Food and Nutrition Service at the U.S. Department of Agriculture issued a final rule that will allow more schools to participate in the Community Eligibility Provision (CEP), a reimbursement option for schools to offer free meals to students without collecting household applications. Schools are eligible for CEP when they meet or exceed the established percentage of enrolled students who qualify for free school meals. The rule decreased this requirement from 40 percent of enrolled students to 25 percent. More schools will now be eligible to provide students with free, healthy meals.
• The Federal Trade Commission submitted notice of its request for public comment on a proposed modification of the Horseracing Integrity and Safety Act of 2020. The modification targets racehorse doping by banning iron dextran, a medication used to treat anemia. Although iron dextran increases red blood cell count, the drug causes anaphylaxis in horses as evidenced by a recent uptick in sudden horse deaths. With this modification, the agency seeks to prevent the “misuse and abuse” of horses.
• The U.S. Drug Enforcement Administration issued a notice of proposed rulemaking that would classify ethylphenidate, a central nervous system stimulant, as a Schedule I substance under the Controlled Substances Act. Schedule I drugs have a “high potential for abuse and no currently accepted medical use in treatment.” Based on reports from health professionals and law enforcement, the agency concluded that ethylphenidate—which produces a psychotropic effect similar to methylphenidate—has a high potential for abuse.

WHAT WE’RE READING THIS WEEK

• In a forthcoming article in Law and Contemporary Problems, Cristie Ford, a professor at the University of British Columbia Peter A. Allard School of Law, examined the disconnect between regulators and the regulated public. Ford named the focus on elite expertise over public input as a barrier to effective regulation. Instead of this approach, Ford maintained that regulatory actions must center on real people and their lived experiences. This shift, Ford argued, may repair the “bonds between state and all the people it is meant to serve.”
• In a report released by the Regulatory Studies Center at The George Washington University, Zhoudan Xie, a senior policy analyst at the Regulatory Studies Center, and Tara Sinclair, a professor at George Washington University and Deputy Assistant Secretary for Macroeconomics at the U.S. Department of Treasury, summarized recent research on regulatory uncertainty about future banking and finance regulations. Xie and Sinclair used natural language processing techniques to quantify the level of uncertainty reflected in newspaper articles covering finance from 1985 to the present. Although a recent run of bank failures contributed to some regulatory uncertainty, Xie and Sinclair stated that uncertainty was far higher in 2010 when the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed. Xie and Sinclair predicted that the prospect of new financial reforms may once again spark regulatory uncertainty among the public.
• In a recent paper, Gianluca Biggi, a postdoctoral researcher at the Institute of Economics at Scuola Superiore Sant’Anna, and his coauthors explored the influence of state regulatory interventions and voluntary corporate social responsibility (CSR) initiatives on companies’ commitment to reducing food loss and waste (FLW). Biggi and his coauthors analyzed 150 company CSR and sustainability reports and found that companies with CSR initiatives are more likely to take initial steps to address FWL. Biggi and his coauthors further concluded, however, that additional state regulatory intervention is necessary for companies to develop more advanced FWL policies.

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Paul C. Light, a professor at New York University’s Robert F. Wagner Graduate School of Public Service, outlined important lessons Americans learned following the government shutdown in early 2019, including, among others, that the shutdown reduced young adults’ desire to pursue a career in government and that the federal government broke its promise to forgive student loan debt to those working in public service. Light argued that these lessons are instrumental in addressing the widening gap between public sector job openings and applications. In turn, Light urged the government to rebuild the civil service system to ensure that future generations will want to engage in public service.

What is the monetary value of an animated cat flying over a rainbow?

About $580,000—at least that is according to the price this digital artwork sold for at an auction held in 2021.

In recent years, the market for digital artwork—often sold as non-fungible tokens (NFTs)—has exploded. But two law professors argue that the digital platforms selling NFTs are misleading consumers about what ownership of these tokens entails.

In a recent article, Juliet M. Moringiello of Widener University Commonwealth Law School and Christopher K. Odinet of the University of Iowa College of Law criticize NFT minting companies’ deceptive advertising and argue in favor of regulatory intervention to protect consumers in the rapidly growing NFT market.

NFTs and other digital tokens are created through minting, which is the process of creating a data entry on the blockchain to represent an asset. Minting platforms then sell the NFTs in an online auction, in which consumers can pay cryptocurrency for a token that purportedly represents ownership of an asset, such as digital artwork, Moringiello and Odinet explain.

But Moringiello and Odinet note that owning an NFT does not mean much in the eyes of property law. As they underscore, current property and commercial law does not allow an NFT to confer any property right to its underlying asset.

When advertising NFTs, however, minting platforms often conflate the tokens with their underlying assets, Moringiello and Odinet explain. For example, Mintable, one of the largest minting platforms, has posted on a public blog that consumers can establish “ownership of an item external to the token.” Another prominent minting platform, Makersplace, has stated on its website that the “token is what provides proof of ownership and authenticity of your creation.”

Moringiello and Odinet argue that such statements have led consumers—and even sophisticated investors—into believing that their NFTs are worth much more than what the law recognizes.

They reason that it is illogical that consumers would spend millions of dollars on NFTs if they knew they were only entitled to ownership of data entries and not the rights to the assets they represent. Some platforms may include disclaimers in their terms of service, but empirical evidence has shown that consumers rarely read the fine print, Moringiello and Odinet note.

Furthermore, Moringiello and Odinet highlight that the average consumer is simply not well-versed in property law.

Misled consumers will inevitably encounter conflicts over NFT transactions, Moringiello and Odinet argue. They give one potential example of a problematic NFT transaction for tangible property—the owner of a sculpture could create an NFT to represent the artwork, sell the NFT to one buyer, but then sell and deliver the sculpture to a second buyer.

In such situations, the NFT buyers could both claim that they own the sculptures or other underlying objects, but the second buyer would in reality be the rightful owner of those objects under property law. Moringiello and Odinet argue that regulatory efforts to police the NFT market are warranted to protect consumers in these transactions.

Moringiello and Odinet acknowledge the opposing argument that consumer problems with NFT transactions should be dealt with through private litigation. But Moringiello and Odinet contend that private litigation is often not available to consumers because of mandatory arbitration and class action clauses embedded in minting companies’ terms of service.

Moringiello and Odinet explain that arbitration presents a “procedural barrier to consumer litigation” because of empirically proven “repeat-player bias” that favors larger companies over plaintiffs, since companies often appear repeatedly before the same arbitrators. In addition, consumers would only be encouraged to bring a claim if they could join with other plaintiffs in a class action. Moringiello and Odinet explain that, with the average price of an NFT at only about $5,800 in 2021, a successful claim would result in damages that would still be significantly less than standard litigation costs.

Such deception, in conjunction with these mandatory arbitration clauses, necessitates intervention by the Federal Trade Commission (FTC), Moringiello and Odinet argue. They contend that the FTC can help protect consumers if they employ their authority to make enforcement threats under the FTC Act. Under the FTC Act, a deceptive practice consists of a “representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances.” Moringiello and Odinet argue that minting platforms too often engage in the kind of deceptive practices that the FTC aims to combat.

They propose that the FTC can tackle these platforms’ tactics by issuing “enforcement and compliance bulletins” to inform minting companies of their illegal marketing practices. In addition, they suggest that state attorneys general should do the same.

State attorneys general also retain the authority to issue enforcement bulletins against private companies if they deceive consumers. State attorneys general also have a special role in protecting consumers because of their “on-the-ground view of local markets,” as Moringiello and Odinet put it.

With all the “hype” that NFTs have garnered, Moringiello and Odinet conclude that regulators need to step in to protect consumers in this booming market.

What is one aspect of the energy transition that people often overlook? Land.

The Biden Administration is calling for an increase in U.S. renewable energy through a number of orders. For example, the Administration has directed that 100 percent of the electricity the federal government procures be carbon-free by 2030. Most, if not all, of that electricity will need to be backed by renewables.

Because wind and solar energy can require at least 10 times more land than coal or gas plants to produce the same amount of energy, the government is going to need find a lot of available land to support its call for increased renewable energy capacity.

Fortunately, the federal government is the biggest owner of land in the United States, holding roughly 640 million acres—nearly a third of all land in the country.

One underused tool available to federal agencies to help meet the Administration’s land use and clean energy needs is known as an enhanced use lease (EUL).

Congress grants EUL authority to federal agencies to allow them to lease to third parties land under the agencies’ control. In exchange for land, a third party pays the agency back either in cash or “in-kind payments,” such as by providing goods or services to the agency.

Agencies have contracted for different types of in-kind payments. The U.S. Department of Veterans Affairs, for example, has leased land to private parties in exchange for the construction of homes for veterans.

Other agencies have leased land in exchange for utility services that generate renewable power for the agency. For instance, the National Aeronautics and Space Administration (NASA) leased land to a Florida power utility. In exchange, the utility constructed and now operates a solar generation system, which provides NASA with a portion of the power it needs.

The U.S. Department of Defense has also contracted for energy-producing EULs at some of its military facilities. The U.S. Air Force, for example, stated in 2014 that it was leasing land for eight energy-based EULs “with the potential to produce approximately 928 megawatts of energy,” which is enough energy to power about 1 million homes. To date, however, the Air Force has not stated how many of these EUL contracts it has entered into.

The only limit on how much energy an agency with EUL authority can contract out is the amount of available land the agency has at its disposal. Although statutory requirements vary by agency, the statutes typically state that land must be “underutilized or excess” to qualify —meaning an agency is not using the land when it enters into an EUL contract nor does it foresee needing it for the contract’s duration.

Although EULs can be beneficial for some agencies, Congress has failed to give every agency this authority.

The only agencies that hold EUL authority today are the Defense Department, the Department of Veterans Affairs, the U.S. Department of Energy, the U.S. General Services Administration, and NASA. The U.S. Department of Agriculture (USDA) once held the authority to enter into EULs, but that authority expired in 2013.

Unfortunately, agencies that currently have the authority to enter into EULs are not the agencies that hold the most land. Of the 640 million acres of land the federal government owns, the U.S. Department of Interior and USDA collectively hold roughly 606 million acres. But neither of these agencies currently possess EUL authority.

The biggest gamechanger would be for Congress to grant the Interior Department and USDA EUL authorities.

A reticent Congress should note that EULs are beneficial for more than just clean energy potential. The Congressional Research Service found that EULs can grant private developers access to otherwise inaccessible land through attractive long-term leases and market rate returns. These researchers also found that EULs benefit local communities through “general economic stimulus, potential tax revenues, job creation, and further community investment.” Agencies that already use EULs have praised their ability to meet renewable energy, energy security, and asset management goals alike.

Meanwhile, agencies that already hold EUL authority should consider making better use of that authority by leasing more of their unused land for renewable power.

Publicly available information places the estimate of energy-based EULs that agencies have completed or are currently constructing in the teens, at most. This estimate is but a fraction of what agencies that do have EUL authority could be creating, given that these agencies have millions of potentially usable acres of land at their disposal.

Members of Congress should, at the very least, direct the U.S. Government Accountability Office (GAO) to look into EULs as a means of procuring more carbon-free electricity. Although GAO publishes hundreds of reports a year, it has not comprehensively reported on EULs since 2011, when it published a report discussing why EUL programs require more attention. And even then, GAO’s focus was on EULs in general rather than on their use for renewable energy production.

Because EULs can take years of planning and construction before becoming operational, the sooner that Congress and agencies act, the sooner the government and private parties can take advantage of EULs. To help meet the Administration’s clean energy goals, the government needs to take better advantage of an underused yet available resource for renewable energy: land.

Federal regulators are taking a more aggressive stance to technology companies, blocking mergers that may harm future competition and seeking to address harmful data practices. In response to increased government scrutiny, tech companies’ spending on lobbying has surged. Five tech giants spent nearly $69 million on lobbying the federal government in 2022.

How might all this business lobbying influence the rulemaking process?

To understand the extent of business influence over agency regulations, political scientists have traditionally looked for differences between proposed and final rules, seeking to identify the extent to which comments from businesses may have led to changes in the rules. Past studies have tended to find business comments linked to at most only a little meaningful change from proposed rule to final rule, sometimes softening the content to make regulation more business friendly.

A new study, however, investigates the power of business lobbying even earlier in the rulemaking process—before agencies have even proposed a rule. In a new article, Alex Acs, a professor at Ohio State University, and Cary Coglianese, a professor at the University of Pennsylvania Carey Law School, demonstrate that businesses can exert significant political influence over agencies’ agendas. Specifically, Acs and Coglianese studied how businesses can influence agencies’ decisions to withdraw proposed rules or never issue them at all.

Acs and Coglianese’s new research shows that persistent business lobbying can be inherently intimidating because it signals business groups’ ability and willingness to marshal their political and legal resources to challenge the agency if it pursues a policy that businesses oppose. Regulators pay attention to political signals, Acs and Coglianese argue, and they may choose not to proceed with a proposed rule if they expect significant opposition.

Acs and Coglianese posit that regulators can use information about different groups’ lobbying efforts to assess which groups are more likely to be successful in influencing the U.S. Congress, White House, or courts to constrain or overturn the regulator’s efforts. Through lobbying, Acs and Coglianese argue, businesses reveal their political power and this information can intimidate agencies.

Acs and Coglianese hypothesized that the presence of business lobbying can have two effects on agencies. First, lobbying may create a “chilling effect”—meaning that agencies subject to more business lobbying are less likely to propose new regulations in the first place, and any rules they do propose are less likely to make major policy changes. Second, lobbying may produce a “retreating effect,” such that agencies that propose rules withdraw them after receiving opposing comments from business interests.

To test for a potential chilling effect, Acs and Coglianese collected data on rulemaking proposals from 69 federal agencies over a seven-year period from 2008 to 2014. Controlling for presidential administrations and other variables, they found that agencies issue substantially fewer regulatory proposals when there is active business lobbying targeting them. A one standard deviation increase in lobbying activity by business groups, for example, was associated with a 25 percent decline in regulatory proposals.

Acs and Coglianese discovered that this negative relationship between lobbying and rulemaking activity also holds when considering only those rules deemed by the agency to be significant policy changes, with agencies issuing fewer such rules when they face greater business lobbying.

To look for a retreating effect, Acs and Coglianese examined what agencies do when rules they have proposed face opposition from business. Analyzing data on comments submitted by businesses as well as business spending on lobbying, Acs and Coglianese found that oppositional comments submitted by businesses that are actively lobbying the agency are associated with agencies’ withdrawals of proposed rules. When businesses spent significant amounts on lobbying at the agency in the time period before agencies released proposals, agencies were nearly certain to withdraw proposed rules that these businesses opposed rather than continuing to revise and finalize them.

Acs and Coglianese found that older lobbying appears to have less influence on regulatory rulemaking decisions. They reason that this is likely because prior lobbying reveals less information about the business’s current inclination and ability to challenge an agency’s actions.

Although the public notice and comment process is a central tenet of U.S. administrative law and presumably egalitarian in allowing anyone to participate in rulemaking, Acs and Coglianese suggest that business lobbying and intimidation may be more influential than the public commenting process that most political scientists have studied. When business lobbying intimidates agencies, it can shape agencies’ decisions about which rules to proceed with from the start.

Acs and Coglianese’s research indicates that significant policymaking may be occurring outside the realm of public scrutiny. It may also shed light on what businesses might expect to achieve if they spend billions of dollars on lobbying: Intimidating federal agencies from adopting rules they oppose.

ChatGPT is the fastest-growing consumer application in history, reaching 100 monthly active users just two months after its launch in November 2022. Since then, OpenAI, the $29 billion, Microsoft-backed creator of ChatGPT, has gone on a global charm offensive to influence the future of AI policy.

Despite the rapid proliferation of ChatGPT and other generative AI applications, little has been done at the federal level to rein in the technology. In July, however, the Federal Trade Commission (FTC) opened an investigation into OpenAI. According to a 20-page civil investigative demand (CID), the FTC is primarily interested in whether the AI company has run afoul of consumer protection laws.

The FTC has had its sights set on AI for years now—from biased outputs to exaggerated marketing claims. The investigation of ChatGPT, however, could represent an unparalleled level of disclosure from AI’s posterchild, which has so far stayed tight-lipped about the development and maintenance of ChatGPT. And although the FTC’s policy is to conduct its investigations on a nonpublic basis, Section 6(f) of the FTC Act authorizes the Commission to “make public from time to time” portions of the information it obtains during investigations, such as when disclosure would serve the public interest.

Among the FTC’s dozens of questions to OpenAI, most are focused on how the company collects, sources, and retains data, as well as how it trains ChatGPT and evaluates the accuracy and reliability of its outputs, including an explicit request for additional information about OpenAI’s process of “reinforcement learning through human feedback.” The CID also calls on OpenAI to list all data sources, including websites, third parties, and data scraping tools.

The FTC’s investigation specifically hones in on two consumer protection issues: “reputational harm” and “privacy and data security.” From a privacy and data security perspective, the Commission will likely evaluate OpenAI’s data collection practices and data retention policies, such as retaining private consumer information or mitigating prompt injection risks.

The FTC’s interest in OpenAI’s privacy practices is unsurprising. After all, the FTC has brought many privacy and data security cases in the past several years, especially against tech companies.

Cases involving reputational harm, however, are rare.

With respect to ChatGPT, the FTC’s interest in reputational harm is probably connected to large language models’ tendency to “hallucinate” or generate false information. A persistent concern about ChatGPT since its launch is whether the AI chatbot could be an engine for spreading misinformation. ChatGPT has fabricated fake news articles, scientific research papers, and even judicial decisions.

In June 2023, for example, ChatGPT’s hallucination resulted in a defamation lawsuit against OpenAI when it allegedly spread false information about a Georgia radio host, accusing him of embezzling money. Accordingly, reputational harm may be a pathway for the FTC to assess OpenAI’s retraining and refining process as it relates to AI hallucinations as well as procedures for addressing outputs that make “false, misleading, disparaging, or harmful statements” about individuals.

Although there is understandably plenty of excitement around what the investigation into OpenAI will reveal, the investigation has already provided a preview of what AI issues are top of mind for the FTC. The results of this investigation will offer a glimpse into how large language models, and AI technology more broadly, fit into the FTC’s consumer protection framework, particularly through the agency’s “unfair or deceptive acts or practices” lens. In fact, the CID as a standalone document provides a high-level checklist of AI governance practices that likely align with the FTC’s regulatory expectations. The demand document effectively puts other AI companies on notice by outlining what practices and procedures should be in place.

The United States lags behind other countries in AI regulation, especially when it comes to privacy risks associated with the technology. The FTC’s investigation into OpenAI is now the best opportunity to establish guardrails for AI products. The FTC has the authority to impose monetary penalties, but the agency is also empowered to establish requirements to prevent companies from engaging in unfair or deceptive practices.

For example, the FTC’s 2019 settlement with Facebook not only imposed a historic $5 billion penalty but imposed new privacy requirements, such as exercising greater oversight over third-party apps and implementing a data security program. Similarly, in a settlement with Flo Health Inc., the creator of a period- and fertility-tracking app that reportedly sold sensitive health data to third parties like Facebook and Google, the FTC required the company to notify its users about the disclosure of their health information and instruct third parties that received users’ health information to destroy that data.

Opening an investigation does not automatically result in important revelations. Still, this is the closest the public has gotten to peeking behind the curtain of ChatGPT. Depending on how the investigation into OpenAI unfolds, the result could provide an operationalized framework for algorithmic transparency in the United States.

Ultimately, the FTC investigation is a welcome development, particularly when compared to the slower response from U.S. lawmakers, who have voiced challenges in balancing innovation and regulation. Unless we are prepared to have history repeat itself, innovation should not come at the expense of consumer safety.

Water is a key ingredient for all life on earth, including human life. Yet only 0.5 percent of water on Earth qualifies as available, useable freshwater. And global climate change will continue to threaten the existing level of freshwater.

As glaciers melt and sea levels rise, coastal groundwater salinizes, threatening the existence of ecosystems and communities. As temperatures rise, extreme weather events such as floods and droughts become more severe and more likely.

In a warming world, droughts have worsened as rising temperatures increase evaporation and decrease the likelihood of rain or snow touching the ground.

Low snowpack and precipitation—combined with extreme heat—causes dry soil, tree death, and decreased streamflow. A parched landscape equates to more fuel for wildfires since dry grasses and trees are more flammable. Then when wildfires inevitably ignite, they spread faster, burn hotter, and cost more to extinguish.

In addition, as the volume of water decreases, less water is available to dilute the pollutants already present. Ultimately, falling water levels in reservoirs or water tables endanger both human health and the environment. This uncertainty about and scarcity of water pushes the question of regulation and rights into the spotlight.

In this week’s Saturday Seminar, experts explore the regulatory challenges confronting the world regarding rights to an increasingly scarce supply of water.

• The current international water law regime is incapable of providing an effective and equitable means for the use of transnational waters claims Isabelle Blacketer, solicitor at King & Wood Mallesons, Fiona Luu, an associate at LK Law, and Paul Babie, a law professor at the University of Adelaide in an article in the Michigan State Law Review. Nevertheless, Blacketer and her team notes that the Berlin Rules on Water Resources advanced the existing framework. They state that those rules prescribe the principle of reasonable and equitable water management and the obligation not to cause significant harm to other co-riparian states in water exploration.
• In a forthcoming article in the Harvard Environmental Law Review, Karrigan Börk of the University of California Davis School proposes a water rights exactions framework to deal with the externalities of water withdrawals. Börk argues that agencies should impose fees for permits for both new and existing water rights so the cost of water overuse will be shouldered by the specific user rather than the general public. He claims this measure can induce more efficient use and distribution oflimited water resources. Börk also notes that his proposal ensures distributional fairness because it requires beneficiaries of water rights to account for the non-monetary social costs associated with water exploration.
• In a recent paper, Robin Kundis Craig of the University of Southern California Gould School of Law discusses two major problems confronting the United States’ response to climate change in the area of water law. The nation’s climate diversity and multi-jurisdictional legal system complicates water rights governance, argues Craig discusses the scholarly attention to these problems as they pertain to the American West, but she argues that more attention should be devoted to studying the eastern United States and tribal water management.
• Samuel T. Ayres, a recent graduate of Yale Law School, argues in a recent article in the Yale Law Journal that the prevailing view of state water rights threatens to derail successful water management when it is most needed. Ayres argues that many scholars are wrong to believe that states are wrong to claim proprietary ownership over their groundwater reserves. At a time when groundwater reserves are both depleting and essential to the future of water governance, Ayres explains that such proprietary ownership of groundwater by states will improve water management.
• In an article in the Michigan Journal of Environmental and Administrative Law, T. Babie of the University of Adelaide Law School and his coauthors describe the implications of a rise in private property approaches to water governance. Babie and his team draw lessons from Australia’s approach to what they call “unbundling,” a policy in which the constituent parts of water rights are fragmented and allocated. Although their analysis uses Australia as a case study, Babie and his team explain how the lessons can be applied to any semi-arid environment, including the southwestern United States.
• In an article in the Michigan State Law Review, Duane Rudolph of the University of Maine Law School examines the relationship between public values and private property rights in water governance. Rudolph argues that water belongs to the public and that the public, through regulators, should assert its right to regulate water during times of emergency. Although Rudolph acknowledges that many water resources are privately owned, he asserts that these rights must give way to public need when the circumstances require. She notes that California, as a user of both riparian rights and appropriations, allows water rights holders the right to use the water while the water itself remains publicly owned.
• Affordability is yet another issue related to accessing freshwater. In a forthcoming article in the Stanford Law Review, Sharmila L. Murthy of the Northeastern University School of Law argues that the basic tenets of utility law have prevented water utilities from addressing affordability. She notes that utility law, as a creature of state and local law, offers the best solution to ensuring affordable access to water and promotes the development of a model state law through the Uniform Law Commission. Murthy examines three jurisdictions—Philadelphia, Atlanta, and California—to demonstrate that a model state law would enable utilities to use water revenues to fund affordability programs and cross-subsidize low-income rates. The model law, Murthy concludes, would help guarantee all Americans access to affordable and clean water.

IN THE NEWS

• Britain enacted the Online Safety Bill, a comprehensive law that introduces age-verification requirements for pornography sites and establishes other rules to regulate online content. The legislation, which took over five years to develop, forces companies to screen for inappropriate content proactively instead of reacting to alerts of illicit content. Michelle Donelan, the British secretary of technology, called the Online Safety Bill “a game-changing piece of legislation.” Critics, including free speech advocates, claim that the bill threatens freedom of expression.
• A federal judge halted the implementation of AB 2273, a California law aimed at protecting the privacy of minors by limiting businesses’ use of data collected from young internet users. U.S. District Judge Beth Labson Freeman granted a preliminary injunction, writing in her opinion that “the State has no right to enforce obligations that would essentially press private companies into service as government censors.” Proponents of the law praised the decision for preventing regulators from violating free speech and online privacy rights, while Attorney General Rob Bonta’s office expressed disappointment in the decision.
• The U.S. Department of Homeland Security (DHS) proposed a new rule designed to enhance the protection of temporary workers in the H-2A and H-2B visa programs. The H-2A and H-2B programs allow U.S. employers to hire foreign nationals for temporary roles when there is a shortage of qualified and available American workers. The introduced reforms offer more flexible safeguards for participating workers, such as  extended grace periods that allow visa holders to stay in the United States while seeking new employment or pursuing a change in immigration status.
• The U.S. Department of Homeland Security (DHS) announced the creation of the Homeland Intelligence Experts Group, a panel of private sector experts formed to advise DHS on intelligence and counterterrorism efforts. DHS established the Experts Group to respond to various threats, such as domestic violent extremists and cyber criminals. The group of journalists, civil liberties advocates, and intelligence officials will convene four times annually. It will include both a former Director of National Intelligence and the Executive Director of the Human Rights Institute at the Georgetown University Law Center.
• The U.S. Food and Drug Administration issued draft guidance to supplement and expand existing guidance on how confirmatory evidence can be used in  clinical trials. The new draft guidance provides additional information on the flexibility in the amount and type of evidence needed to establish the effectiveness of clinical trials. The agency stated that it issued the guidance because the science behind drug and biological development has evolved, which has led to changes in the types of product development programs submitted to the agency for evaluation.
• The Consumer Financial Protection Bureau issued guidance requiring lenders who use artificial intelligence in reviewing loan applications to explain their reason for denying consumers credit. The agency explained that the guidance is designed to improve consumers’ chances of obtaining  future credit and to protect consumers from illegal discrimination. The agency also structured the guidance to prevent lenders from relying on a finite checklist of reasons provided in sample forms that may not include the real reason for denial. Consumer Financial Protection Bureau Director Rohit Chopra stated that creditors should be able to explain the reasoning for an adverse decision and that there “is no special exemption for artificial intelligence.”
• The Federal Trade Commission and the U.S. Department of Labor signed a Memorandum of Understanding outlining how the two agencies will cooperate to protect workers from anticompetitive, unfair, and deceptive practices. The agreement focuses on areas of mutual interest for the agencies, including the impact of labor market concentration and the imposition of one-sided and restrictive contract provisions, such as non-compete clauses. The Federal Trade Commission explained that the agreement is part of its broader initiative to use the agency’s full authority to protect workers, including through enforcement actions and rulemaking.
• The U.S. Department of the Interior announced a plan to preserve over 4,000 acres of land within New Mexico’s Placitas region. The proposal’s primary focus, the subject of several prior failed legislative attempts, is safeguarding prehistoric archaeological sites. The plan would do so by preventing new mining claims and any development of oil and gas activities in the area for 50 years. The proposal is also designed to protect Tribal lands, enhance local recreation opportunities, and conserve wildlife habitats.

WHAT WE’RE READING THIS WEEK

• In a forthcoming article in the Penn State Law Review, Eric Hess, Managing Counsel of Hess Legal Counsel LLC, argued that regulators and stakeholders should consider using a collaborative approach to regulating  decentralized finance in place of a top-down approach. Hess highlighted use cases for decentralized finance such as performing innovative anti-money laundering verifications and evaluating potential adaptations of current Securities and Exchange Commission and Commodity Futures Trading Commission rules. He explained that this collaborative method can strike a balance between regulation, risk management, and innovation, benefiting the entire decentralized finance ecosystem.
• A recent Consumer Financial Protection Bureau (CFPB) report highlighted the risks students face when enrolling in tuition payment plans offered by colleges. After examining nearly 450 institutions, the CFPB discovered inconsistent disclosures and confusing repayment terms that put students at risk of missing payments and accumulating more debt. The report identified high fees, coercive debt collection, compounding interest, and inconsistent disclosures as threats to students’ finances that are often unexpected. The CFPB plans to continue monitoring tuition repayment plans for potential violations of consumer financial laws.
• In a forthcoming research paper, Aaron L. Nielson, Professor of Law at Brigham Young University Law School, Christopher J. Walker, Professor of Law at the University of Michigan Law School, and Melissa F. Wasserman, Professor of Law and Associate Dean for Research at the University of Texas at Austin School of Law, discussed the legitimacy of agency adjudicators and adjudications. The authors noted proposals to improve the legitimacy of adjudications, including by creating a new “central panel” agency to house agency adjudicators. The authors argued that these proposals are misguided and that Congress and federal agencies should use the Constitution to promote the independence of adjudicators, including by limiting political interference in the hiring, supervision, and firing of agency adjudicators.

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Susan Block-Lieb, the Cooper Family Chair of Urban Legal Issues at Fordham Law School, argued against criticism that the Consumer Financial Protection Bureau lacks accountability due to its regulatory and financial independence and single-director leadership. Block-Lieb contended that Congress intentionally designed the Consumer Financial Bureau’s design to shield the agency  from undue influence by interest groups and executive interference. The agency, Block-Lieb emphasized, still cooperates with other regulatory bodies and responds to political and industry forces.

Prescription drugs cost more than double in the United States than in any other country in the world. In 2021 alone, the U.S. spent $603 billion on prescription drugs. To combat skyrocketing drug prices, Congress established a program that requires drug manufacturers to negotiate prices with Medicare. This month, the Department of Health and Human Services (HHS) selected the first 10 drugs subject to negotiation.

Although this negotiation program promises to lower drug prices for patients and reduce the U.S. government’s spending on prescription drugs, pharmaceutical manufacturers threaten to derail its implementation with a series of lawsuits against HHS. The agency’s drug selection marks a critical step toward improved regulation of pharmaceutical prices, but the negotiation program may face continued obstacles moving forward.

Historically, the U.S. government has not had control over drug prices. Instead, drug manufacturers set prices based on what they think will be competitive in the market. By contrast, other countries’ governments, such as Australia and Germany, intervene in the drug pricing process to ensure that the price reflects the drug’s value to patients. The U.S. pharmaceutical industry’s largely unchecked power over drug prices has not only provoked public concern for years but also in recent years garnered congressional attention.

In 2022, Congress passed the Inflation Reduction Act (IRA), which includes various provisions aimed at reducing drug prices and expanding access to prescription medications. The IRA enables Medicare to negotiate the price of select prescription drugs with their respective pharmaceutical manufacturers. This negotiation program targets high expenditure drugs that do not have competitors on the market.

In recent guidance, HHS details the agency’s process for selecting the first 10 drugs subject to negotiation with Medicare. According to the guidance, the agency must select drugs that have been on the market for at least seven years and impose the highest costs on Medicare, excluding particular classes of drugs. Medicare will negotiate a “fair price” with the drug manufacturers of the first 10 chosen drugs, and the negotiated prices will go into effect beginning in 2026.

The medications treat a range of life-threatening diseases, including heart failure, cancer, and diabetes. One of the chosen drugs, Imbruvica, is a treatment for patients with leukemia. In 2020, Medicare spent $3 billion on Imbruvica, and patients without insurance coverage paid over $15,000 for a 30-day supply.

In 2022, nine million Medicare beneficiaries took the 10 drugs selected for negotiation and paid a total of $3.4 billion in out-of-pocket costs. These drugs also accounted for $50.5 billion in total Medicare costs in just one year.

The program is projected to save the government $98.5 billion over the next decade. “We’re going to keep standing up to Big Pharma, and we’re not going to back down,” exclaimed President Joe Biden after the Administration unveiled the list of drugs. Agency leadership echoed the President’s sentiments, declaring the selection to be a “significant and historic moment for the Medicare program.”

Multiple drug companies subject to the price negotiation program, however, have sued HHS. Merck & Co. was the first manufacturer to file suit in June 2023, and its drug Januvia is one of the first 10 drugs subject to negotiation. Since June, five additional manufacturers have joined Merck & Co. in challenging the program, and over half of them manufacture drugs selected for the first round of negotiation with Medicare. The manufacturers allege that the program established by the IRA is unconstitutional and stifles innovation, insisting that it deprives them of their revenue in violation of the Constitution’s protections for private property.

Although the outcome of these lawsuits remains uncertain, manufacturers of the selected drugs must agree to negotiate the prices by October 1, or else face penalties—paying an additional tax on all U.S. sales or withdrawing from federal health care programs. The agency will make an initial offer in early 2024 based on data from the manufacturer and evidence about available alternative treatments. HHS has also created opportunities for the public to engage with the agency throughout the negotiation process, including hosting sessions for patients to share their perspectives on therapeutic benefits of and alternatives to the selected drugs.

The success of the program may hang in the balance as pharmaceutical manufacturers’ lawsuits remain unresolved, and as HHS awaits their decisions on proceeding with negotiations. Although the announcement of the first 10 drugs subject to price negotiation is only the first step in a long process aiming to lower drug prices, it signals a historic shift in U.S. drug policy that would appear to be central to the Biden Administration delivering on its commitment.

A jolt of electricity strikes the heart and neither love nor nature is behind it. Rather, a hacker has accessed a pacemaker with wireless capability and discharged a deadly surge. This worrisome scenario is but one of many possible risks from cyber-physical devices that are susceptible to cyberattack.

In a recent research paper, Christopher S. Yoo and Bethany Lee at the University of Pennsylvania Carey Law School urge the U.S. Food and Drug Administration (FDA) to develop a new regulatory framework governing cybersecurity risks associated with medical devices.

Yoo and Lee argue that cyber-physical medical devices pose novel challenges to FDA’s traditional approach to evaluating device safety and effectiveness. Unlike other software, cyber-physical devices are embedded in an environment that is unpredictable and unbounded. And unlike traditional hardware devices, risks to patients may stem not just from a malfunction but also from intentional, malicious actors.

Given these factors, it is not possible to eradicate all possible cybersecurity risks for a given device. Instead, Yoo and Lee argue that device developers must establish an optimal level of cybersecurity that is not overly burdensome, costly, or a hindrance to device functionality. But exactly which risks must be mitigated, and which may be considered reasonably acceptable, may remain uncertain to medical device developers in the absence of clear agency guidance on the issue.

FDA has published a series of guidance documents over the last decade focusing on cybersecurity, most recently in 2018. These guidance documents acknowledge that residual risks are unavoidable and that certain acceptance criteria for risks must be established for medical devices to be deemed “trustworthy.”

FDA vaguely defines “trustworthy” medical devices, Yoo and Lee argue, as ones that “(1) are reasonably secure from cybersecurity intrusion and misuse; (2) provide a reasonable level of availability, reliability, and correct operation; (3) are reasonably suited to performing their intended functions; and (4) adhere to generally accepted security procedures.”

What is reasonable is largely up to the manufacturers to decipher when attempting to design safe but innovative products to bring forth for FDA review.

Yoo and Lee explore various methods of cost-benefit analyses that the agency could adopt to fill this regulatory gap. The first hurdle, however, will be convincing FDA that it has the authority to consider non-therapeutic factors, such as increased prices or development costs, at all.

The agency’s authorizing statute, the Federal Food, Drug, and Cosmetic Act (FDCA), tasks it with ensuring device safety and effectiveness by “weighing any probable benefit to health from the use of the device against any probable risk of injury or illness from such use.” Although the statute does not explicitly prohibit economic considerations, as a matter of policy, FDA bases its benefit-risk assessments solely on scientific determinants.

FDA disclaims the possibility of disapproving a device or therapy on the basis of its cost. Yoo and Lee argue, however, that judicial precedent, statutory interpretation, and the agency’s own policies do not preclude economic considerations, even if the agency has yet to act on them.

Judicial precedent in which the U.S. Supreme Court has struck down cost considerations, such as Whitman v. American Trucking Associations, produced carveouts to avoid compliance with rules or standards altogether. In the case of medical device cybersecurity, the cost-benefit analysis would supplement FDA’s “reasonable assurance of safety and effectiveness” standard.

Statutory silence and ambiguity in the FDCA also lean toward permissibility, Yoo and Lee argue. They claim that because the FDCA does not overtly rule out consideration of cost, FDA’s decision to read “reasonable assurance of safety and effectiveness” to include cost considerations should be granted judicial deference.

In fact, another agency has successfully interpreted silence in its authorizing statute to use a cost-benefit test: the Federal Trade Commission (FTC). The Federal Trade Commission Act explicitly tasks the FTC with “preventing and penalizing unfair and deceptive practices.” In deciding whether conduct is unfair or permissible because it is balanced by “benefits to consumers or competition,” the FTC does consider economic costs.

When translated to medical device cybersecurity, a test similar to that employed by the FTC would assess the costs and benefits of the decision to add or omit a particular cybersecurity safety feature to a given device. The benefits of reduced costs and improved functionality on one hand must outweigh the cost of the increased security risk on the other, according to Yoo and Lee. A cybersecurity feature that offers minimal improvement to safety but at excessive cost would not be necessary for the “reasonable assurance of safety,” they say.

Yoo and Lee explore other methodologies of cost-benefit analysis including the risk-utility calculus used in medical device product liability tort litigation and incremental cost effectiveness ratios common in health care economics contexts. Yoo and Lee recommend, however, that FDA establish a cost-benefit framework resembling the FTC’s unfair conduct evaluation, as it is easiest to administer and provides the most robust legal justification for FDA’s authority to consider economic costs in assessing medical devices.

No matter what path the agency takes, as long as 100 percent cybersecurity remains out of reach, the level of acceptable safety should be determined by some form of cost-benefit test, Yoo and Lee conclude.

The liberalization of telecoms in the European Union from the 1990s onwards ushered in a transition from monopoly to competition. This process can be regarded as a success. In part, this has been due to appropriate regulation, which is based on economic freedom, competition, universal service, technological neutrality, and innovation.

It is true that telecom firms have been fueled by the technological revolution. But telecoms make up a complex sector, and new firms face high barriers to entry and sunk costs. This is why a policies promoting competition have been applied, allowing third-party access at regulated prices. Incumbent operators had to pay a high price for having been monopolists. They were required to contribute to the creation of competition.

Regulation, however, was not intended to be permanent. To this end, national telecom agencies were tasked with periodically analyzing the market to check whether competition had been achieved. This has enabled regulation to be phased out as the market matured. In less than two decades, the number of markets in Europe susceptible to ex-ante regulation has been reduced from 18 to 2. Regulation is now limited to some wholesale markets and access to civil engineering infrastructure, which facilitates the deployment of new networks.

In short, the legal framework for telecommunications in Europe provides has remained stable for almost three decades in part because it is capable of adapting to the evolution of the sector. In doing so, telecoms have contributed to the development of a technology-driven society and economy, with near-universal broadband services, highly competitive and increasingly deregulated markets, and low prices.

And yet, the situation described above is only part of the reality.

The fact is that an internal telecommunications market does not really exist. Europe is not the United States. Under the umbrella of the same EU regulation, markets have remained national. There are only a few operators present in several countries and many more national companies. There is no easy solution to this situation. In mature markets such as exists in telecommunications, high regulatory barriers make it difficult for operators to grow in other countries and merger control by competition authorities impedes consolidation in national markets.

To this must be added the sector’s black swans.

On the one hand, European policy has encouraged a model of vertically integrated operators, which is now crumbling. No one knows whether the emergence of wholesale-only operators, such as tower managers, will be consolidated or

temporary because telecoms need to reduce debt. It also remains to be seen to what extent Big Tech will continue to invest in infrastructure (so far they have only invested in submarine cables) or enter into the provision of telecom services (for example, Amazon plans to offer a low-cost mobile phone service in the US).

On the other hand, technology enables the unbundling of networks and services. This means that online operators provide a growing number of services such as software, computing, management, storage, and artificial intelligence. Telecoms must compete and provide such services to avoid their role being reduced to only providing connectivity. Industry could also manage directly the infrastructure supporting the internet of things, thereby bypassing telecom operators.

These are not easy times for EU telecom operators, which have to invest huge amounts of money in new networks while continuing to decapitalize. In this context, EU regulators are assessing whether Big Tech should be obliged to pay for the use of telecom networks—the so-called “fair share” or “telco” tax.

It is argued that because Big Tech firms, including Netflix, Google, Facebook, Microsoft, Apple, Amazon, use more than half of the available bandwidth and are the most intensive users of the telecommunications network, such firms should therefore contribute to financing future telecom networks. On the other hand, Big Tech argues that it is their services that give value to the use of the network.

In the United States, the principle of net neutrality has been a battleground between Republicans and Democrats for decades. Net neutrality requires that internet service providers provide access to all websites at the same speed and do not block or give preference to particular content. Federal Communications Commission policy has varied according to the governing majority. In Europe, regulation affirms net neutrality but it also allows operators prudent management of their networks.

The point is that “fair share” regulation does not involve network traffic management, so it has nothing to do with net neutrality. “Fair share” regulation aims to allow operators to make a return on their investments but would not interfere with the traffic flowing over the network. Thus, it does not pose the same problems as the principle of net neutrality, which maintains the internet’s open character by requiring that all internet traffic be treated equally. Strict application of this principle would prevent telecoms from charging online operators for reserving bandwidth for the provision of their services.

“Fair share”-like measures are not alien to regulation. In fact, in Spain, telecoms have had to contribute to the financing of public television without advertising, in the same way that commercial televisions finance the production of European movies. But such measures can only be introduced if they respond to objective reasons and are appropriate, necessary, and proportionate.

Big Tech’s contribution could be implemented in different ways. For example, Big Tech could contribute to a fund that finances the construction of new networks. Regulation could also oblige Big Tech to make a reasonable contribution to the financing of networks. This could leave room for negotiation between the parties, with the regulator intervening if disagreements arise.

Europe would not be the first to introduce such a measure because South Korea previously adopted “fair share” telecom regulation. The European Parliament also seems to support “fair share” regulation. Moreover, the Internal Market Commissioner might share the concerns of telecom operators, due to his past at Orange and France Telecom.

But the European Commission has not defined its position so far. Member states are divided on the issue. There are also doubts about the effectiveness of these measures and their likely impact on consumers, who could end up footing the bill. The answer will be known in the coming months.

Almost a decade before the release of the first iPhone, Congress passed what now remains the only federal law regulating the collection of children’s data on the internet.

Although the Children’s Online Privacy Protection Act of 1998 (COPPA) imposes a set of specific requirements on certain websites, these requirements have struggled to keep pace with the rapid development of social media and internet culture since the turn of the century. In response, bipartisan groups of lawmakers have recently started pushing for passage of new legislation to protect children’s data online.

COPPA’s substantive protections include restrictions on the types of online marketing that can be targeted toward children and requirements that website operators post a privacy policy whenever data are being collected. COPPA also necessitates that websites obtain verifiable parental consent for the collection and use of any children’s data.

COPPA does not, however, explicitly outline how parental consent for the collection of children’s personal information can or should be obtained. To address this gap, the Federal Trade Commission, the regulating body for COPPA, published guidance in 2013 suggesting that websites should clearly display downloadable consent forms and require parents to use credit cards or government-issued identification to authenticate their age and identity.

Despite these efforts to clarify and bolster existing protections, some experts contend that COPPA provides only limited protection. Katharina Kopp, the Director of Policy for the Center for Digital Democracy, reportedly notes that COPPA leaves children to be “unscrupulously exploited and taken advantage of by pervasive data-driven digital marketing and entertainment systems.”

“Exploitative data practices” and “predatory marketing tactics” have disproportionately targeted Black children, argues Jade Magnus Ogunnaike of the racial justice advocacy group, Color of Change, further alleging that Facebook, for example, knowingly advertised harmful products, including diet pills and alcohol, to such children. She suggests that new regulations are needed to prohibit the use of targeted advertisements based on race or socioeconomic status.

Federal regulations established under COPPA are also limited in that they apply only to websites and online services that are either directed toward children under the age of 13 or that knowingly collect data from such children. This leaves older children and teens without relevant federal protections, even though they may be at greater risk of data exploitation given the heightened use of the internet by this age demographic.

Over 90 percent of American parents currently believe that existing privacy rules should be extended to include teenagers as well as younger children.

Facing strong public support for protecting children’s interests online more effectively, lawmakers have proposed a pair of bipartisan bills. The first bill, the Children and Teens’ Online Privacy Protection Act, would directly expand COPPA’s existing protections to all children up to the age of 16. The bill would also create an online “eraser button” rule, by which companies would be required to allow users to delete personal information collected from children and teens.

The second bill, the Kids Online Safety Act (KOSA), would require website operators to establish safeguards to protect children’s data and create new tools to enable parents to monitor their children’s online presence. The bill would also mandate the disclosure of datasets and other “black box algorithms” to advance research on the safety and well-being of minors online.

Despite the sponsoring lawmakers’ concerted efforts to include both pieces of legislation in the fiscal year 2023 funding plan, the plan’s final text excluded both bills. The lawmakers have tended to blame the technology industry’s lobbying prowess for the bills’ failures. Senator Richard Blumenthal, one of the legislators behind KOSA, tweeted that “Big Tech’s behemoth sway stymied our efforts” through “millions of dollars spent on misinformation defending corporate greed.”

But the bills also faced opposition outside of the Big Tech industry, with an assortment of human rights advocacy groups, including the Center for Democracy & Technology and the American Civil Liberties Union, contending that KOSA would ultimately endanger children’s safety, despite the stated intentions of the legislation.

A letter signed by over 90 advocacy organizations declared that KOSA would be weaponized by political actors to “over-moderate” vulnerable young people’s access to critical resources concerning reproductive healthcare, abortion, sex education, LGBT support, mental health services, and more. The letter also expressed alarm that KOSA would over-burden schools’ ability to use education technology to improve students’ learning experiences.

Self-described right-leaning organizations have published additional concerns unaddressed in the letter. The Director of Technology and Innovation Policy at the American Action Forum, for example, described KOSA as posing potential problems for free speech online.

In the future, Congress may be likely to take up one or both of the two bills for reconsideration, especially as new reports continue to reveal the dangers of children’s internet usage. But passing legislation that updates federal regulations governing children’s online data will not be easy given competing concerns over highly contentious issues, including free speech, content moderation, and child safety.

In many sectors of today’s advanced economies—such as pharma, tech, energy, and finance—government regulation has become more extensive and complex. This regulatory complexity creates difficulties for both new and established firms that want to compete and innovate in these markets, as they face more government intervention and supervision that can influence crucial aspects of their business, such as pricing, product development, and market entry.

Business research, however, has largely overlooked how policy implementation varies across different contexts and how it shapes market outcomes for firms in regulated markets.

To fill this gap, we studied how state-level regulatory discretion affects entrepreneurial entry and incumbent performance in the U.S. energy market. Regulatory discretion is the amount of leeway that agency officials have in applying and enforcing policy. By examining the autonomy of regulators, who are the main actors that firms interact within regulated markets, we can gain a deeper understanding of how regulation works and affects business performance.

In one recent empirical study, we investigated how regulatory discretion affects the entry of clean-tech entrepreneurs into the U.S. hydropower market. We measured discretion as the number of administrative procedures that limit regulators’ ability to apply and enforce policies. When discretion is low, regulators are more likely to be swayed by legislators, who may be influenced by incumbent firms to block new entrants. When discretion is high, regulators are more independent from legislative pressure and can make decisions based on their mission, expertise, and public interest.

We found that greater regulatory discretion enabled the entry of entrepreneurs using innovative hydropower technologies, such as run-of-the-river, pumped storage, and marine (tidal) systems. In places where regulators had more discretion from legislators, entrepreneurs obtained a license 22.5 percent faster than the average wait time of 4.5 years. Faster licensing translated to an average revenue increase of $2.8 million.

Moreover, incumbent firms were less able to sway regulator decision-making in their favor. Where regulatory discretion was high, incumbents’ lobbying influence was reduced by nearly 30 percent. This is a significant finding. Incumbents usually have an advantage over new entrants in regulated markets because they can capture and shape regulation to fit their capabilities, giving them a competitive edge. We found that regulatory discretion helped balance the competition. This study suggests that entrepreneurs should target places where regulatory discretion is high.

In a second study, we examined how discretion influences the impact of stakeholders on regulatory decision-making. Some regulated products provoke strong stakeholder reactions. For example, some groups demand faster approval of new drugs, while others may oppose the approval of contentious products such as genetically modified organisms. Likewise, the energy market has elicited diverse stakeholder responses to activities ranging from oil and gas production and transmission to wind and biomass facilities.

We examined how stakeholder opposition to hydroelectric power facilities from 1987 to 2019 influenced licensing outcomes. Previous studies have shown that activists can affect firms indirectly via the state, but the effects of different activist tactics on regulatory decision-making are not clear. This theoretical gap matters because government institutions have different objectives and incentives than businesses. Studying firms in regulated markets reveals how activists can shape business outcomes beyond private political tactics, such as boycotts or name-and-shame campaigns.

We found that discretion increases the public accountability of regulators and thus enhances the impact of stakeholders filing formal objections and protesting facilities on licensing outcomes. The results of our study show that high discretion allows activists to delay licensing by 90 percent, which means 1,526 days longer than the average wait time of 1,695 days for our sample. This effect does not mean that firms are powerless, but rather that hydropower companies that proactively address the concerns of regulators and moderate stakeholders can reduce the ability of the broader opposition movement to hinder facility licensing.

In other words, companies must pay attention to both the political opportunities arising from the regulatory environment and the composition of the stakeholder coalition and be ready to engage proactively with groups that use moderate tactics.

These two studies, taken together, suggest two policy implications. First, achieving a diverse energy portfolio is a key security and sustainability objective in many state and national policies. The effectiveness of these policies, however, varies across contexts. Rather than exclusively focusing on policy content, elected officials should consider how regulatory agencies are organized and how the policies are implemented.

Second, social activism can have positive or negative impacts on firms’ entry, innovation, and growth in regulated markets. Given the role of regulatory discretion in moderating the influence of social activists on business outcomes, elected officials may need to balance the discretion given to regulators with the degree of stakeholder activism in their states to attain policy goals.

In a discussion with The Regulatory Review, former Administrator of the Office of Information and Regulatory Affairs (OIRA) Susan Dudley offers her thoughts about important guidelines federal agencies use to analyze new regulations before they adopt them.

The Biden Administration recently proposed making changes to these guidelines by releasing a draft revision of Circular A-4, a document originally issued twenty years ago to this day by the Office of Management and Budget (OMB) but which has not been updated since. Dudley analyzes the role that the existing Circular A-4 has played in assessing regulatory impacts, shares her views about the significance of the proposed changes, and offers suggestions on how to improve Circular A-4.

Dudley views economic analysis as an important ingredient in the development of efficient regulation. She supports the proposal to change Circular A-4 to emphasize the need for more information about regulations’ distributional consequences, especially when regulations would impose significant costs on low-income individuals. Dudley suggests that OMB should further revise its proposed Circular by limiting agencies’ ability to use paternalism to justify new regulations and by providing more objective principles for producing cost-benefit estimates.

Dudley spent her early career as an economist for various agencies, including the Commodity Futures Trading Commission, Environmental Protection Agency, and OIRA. She served as OIRA Administrator within the Bush Administration from 2007-2009. At the end of her service as Administrator, Dudley established the George Washington University Regulatory Studies Center and has remained its director since. She is also a distinguished professor of practice in the Trachtenberg School of Public Policy and Public Administration at George Washington University. In addition, she is a past president of the Society for Benefit Cost Analysis and a senior fellow with the Administrative Conference of the United States.

The Regulatory Review is pleased to share the following interview with Susan Dudley.

TRR: What role does Circular A-4 play in agencies’ regulatory analyses? How does it affect decisions made by agencies and OIRA during the rulemaking process?

Circular A-4 is the blueprint for estimating the impacts—positive and negative—of available regulatory approaches to addressing an identified public need. Ideally, agencies conduct regulatory impact analysis at the beginning of the regulatory process to determine if a regulation is needed and what approaches will yield the greatest net social benefits.

Regulatory impact analysis informs policy decisions; it does not determine them. It applies an economic lens to examine the welfare differences among alternative policies, which policymakers consider along with other factors, such as legal constraints, political viability, distributional impacts, and practicality.

TRR: Why has it taken 20 years before an administration proposed updates to Circular A-4?

Since the Circular is grounded in core economic principles and policy analysis practices, it hasn’t required frequent updates to remain relevant and useful. It provides structure for agencies in complying with Executive Order 12,866—issued by President Clinton in 1993 and still in effect today. The Executive Order and Circular A-4 have proven durable across different presidential administrations because they are based on objective principles that help agencies provide nonpartisan information to policymakers on an important factor in policy decisions—the efficiency of different approaches to achieving policy goals.

TRR: What aspects of the revisions proposed by the Biden Administration do you support?

The draft Circular includes a substantive section on assessing the distributional consequences of regulatory alternatives—who bears the costs, and who receives the benefits. The 2003 Circular contains a very brief discussion of distributional effects, and I think additional detail is overdue. Disaggregating effects on lower-income households is particularly important for regulations that increase the costs of basic goods and services, like food or energy, or that disproportionately affect disadvantaged segments of society. However, in a public comment I submitted to OMB, I raised serious concerns about the proposed use of numerical “weights” to count a dollar as more or less than a dollar depending on the affected party. As former presidents of the Society for Benefit-Cost Analysis wrote to OIRA, there are no widely accepted principles, nor is there professional consensus, to support embedding non-transparent normative factors into agencies’ benefit and cost estimates.

TRR: What parts of the proposed revisions do you think need further refinement or a return to the original?

My comment to OMB noted that the revised draft—which is almost twice the length of the 2003 version—is needlessly complex, likely leading to analyses that are less transparent to policy officials and the public. For all but the most significant regulations, a simpler, more transparent presentation of alternatives with clear acknowledgment of uncertainties and their impact on projections, would be more valuable. Specifically, I think OMB should:

• Require agencies to present best available estimates of likely benefits and costs and avoid incorporating normative methods and factors in the quantitative analysis (such as with weighting);
• Avoid unjustified precision in estimates (such as the proposed discount rate of 1.7 percent) and urge agencies to present ranges and best estimates;
• Provide less leeway either to override state, local, territorial, or tribal actions or to regulate individuals based on paternalistic assumptions that people do not act in their own interest; and
• Require agencies to present data on domestic impacts separately from global impacts.

TRR: Beyond updating Circular A-4, what steps can the federal government take to strengthen regulatory analysis and improve regulation?

The draft Circular does not mention retrospective evaluation of regulatory impacts. This is a missed opportunity to provide agencies guidance on implementing President Obama’s pivotal Executive Order 13563—which President Biden reaffirmed on his first day in office. There is bipartisan support for ex-post regulatory analysis and my comment to OMB suggested that the guidelines encourage agencies to adopt a learning agenda when developing a new regulation to improve the available evidence for meaningful retrospective evaluation. This could include designing rules with subsequent evaluation in mind. That might mean identifying when it would be beneficial to gather more information by focusing on assumptions to which outcomes are most sensitive. And it could also mean writing rules that provide opportunities for natural experiments, including by allowing state, local, and tribal governments to take the lead on regulations.

Two years ago, the Taliban seized Kabul and ousted the U.S.-backed Afghan government. Amid the United States’ chaotic withdrawal from the city, the U.S. government airlifted more than 76,000 Afghan nationals out of the country. The evacuation operation was the U.S. government’s largest since the resettlement of 125,000 Vietnamese refugees following the fall of Saigon in 1975.

The Department of Homeland Security (DHS) granted most evacuees humanitarian parole—a temporary immigration status to live and work in the United States—for two years. Last year, Congress failed to create a path to permanent residency for Afghan parolees. The bipartisan Afghan Adjustment Act (AAA) floundered without sufficient support from congressional Republicans.

Unlike other forms of humanitarian protection, such as refugee or asylee status, parole is discretionary and does not confer pathways to lawful permanent residency or citizenship. Yet immigrants’ rights advocates emphasize that parole can be a lifesaving resource during acute crises, such as the Taliban takeover of Afghanistan. Entering the United States through other immigration channels may take years and require significant documentation.

After two years of living in the United States, many Afghan parolees report living in “legal limbo.” Immigration experts observe that parolees are often anxious about their legal status, especially during presidential administrations that tighten immigration restrictions. Labor and welfare scholars note that Afghan parolees fear losing their jobs because their work permits are tied to their parole status.

For its part, the U.S. government has encouraged Afghan parolees to apply for immigration statuses for which they might qualify, including statuses with prescribed paths to permanent residency. Congress passed a law requiring U.S. Citizenship and Immigration Services to schedule initial asylum interviews for Afghan evacuees within 45 days of their asylum application filing and to provide decisions within 150 days of filing.

Despite new obligations placed on U.S. Citizenship and Immigration Services, Afghan parolees report challenges navigating complicated application processes without legal support, as many Afghans struggle to find or afford legal assistance. Among Afghans who submitted asylum applications, some experienced lengthy wait times that violated Congress’s mandate.

DHS recently created a process for qualifying Afghans to renew their parole and work permits for another two years. Some Afghans criticized parole renewal as a “temporary stopgap” that failed to provide much-needed legal stability. Parolees and their supporters, including former military leaders, urged Congress to pass status adjustment legislation to protect paroled Afghans from deportation.

In response, U.S. Senator Amy Klobuchar (D-Minn.) reintroduced the AAA, as the bill’s supporters pointed to the United States’ long history of following large-scale usages of humanitarian parole with status adjustment legislation.

In this week’s Saturday Seminar, scholars examine how legal uncertainties impact Afghan parolees’ day-to-day lives and how past status adjustment acts from Congress can inform future legislation to help Afghan nationals.

• The National Immigration Forum argues that Congress should pass the reintroduced AAA to provide paroled Afghans a path to permanent legal status. In a brief, the Forum highlights the United States’ history of creating expedited pathways to citizenship for foreign nationals who aid the U.S. military. The Forum cites the Cuban Adjustment Act of 1966, amendments to the Indochina Migration and Refugee Assistance Act of 1975, and the Omnibus Consolidated and Emergency Appropriations Act of FY 1999 as examples—the last of which created a path to permanent residency for some Iraqi asylum seekers. The Forum argues that withholding a similar adjustment for paroled Afghans will worsen asylum backlogs and exacerbate legal uncertainty for parolees.
• Alexandria J. Nylen of the Center for Human Rights and Humanitarian Studies at Brown University and several coauthors argue that domestic laws and international treaty obligations require the United States to evacuate foreigners who worked for the U.S. government in times of crisis. Nylen and her coauthors interviewed Afghan evacuees in Rhode Island, including those eligible for the Special Immigrant Visa (SIV) program because of their work for the U.S. military. In their report, Nylen and her coauthors contend that confusion over SIV eligibility contributed to the failure to evacuate over 70,000 Afghans who applied for SIVs before September 2021. The Nylen team recommends expanding SIV eligibility and revising qualification criteria to align with the diverse work done by Afghans who assisted the U.S. government.
• In an article for Migration Information Source, Muzaffar Chishti and Kathleen Bush-Joseph of the Migration Policy Institute argue that, without permanent status, Afghan parolees and similarly situated groups risk being deported to conflict zones or staying in the United States as unauthorized immigrants. Chishti and Bush-Joseph detail the Biden Administration’s “unprecedented” reliance on executive discretionary grants of temporary relief—dubbed “twilight statuses”—to assist nearly 2 million Although twilight statuses such as humanitarian parole can help the government respond quickly to crises, Chishti and Bush-Joseph argue that they leave Afghan parolees and others with temporary statuses vulnerable to sudden changes in their legal protections.
• In a forthcoming Howard Law Journal article, Lindsay Muir Harris of the University of San Francisco School of Law contrasts the United States’ response to Afghan evacuees after the fall of Kabul with its response to Ukrainian refugees after Russia’s invasion. Harris argues that refugee resettlement agencies struggled to handle the sudden arrival of Afghan parolees. Citing an American Civil Liberties Union lawsuit, Harris also notes that DHS adopted stricter standards for humanitarian parole processing for Afghans, leading to increased application denials. She claims that financial and paperwork burdens on Afghans seeking parole contrast sharply with a “wide-open doors policy” for Ukrainians, who received parole at higher rates and navigated a streamlined and cost-free application process.
• In an article for the Michigan Law Review, Charles Shane Ellison of Duke Law School and Anjum Gupta of Rutgers Law School argue that the arrival of Afghan evacuees in the United States coincided with an asylum system in crisis. Ellison and Gupta contend that the Trump Administration built an “administrative wall” to prevent the entry of refugees by lowering annual refugee admissions caps and intensifying vetting processes. Ellison and Gupta recommend curbing the high degree of judicial deference given to immigration agency decision-making because these deference doctrines permit agencies to exclude migrants under the guise of “agency expertise,” thus violating the United States’ international treaty obligations.
• Following the collapse of the Afghan government in August 2021, Abigail F. Kolker, an immigration policy analyst at the Congressional Research Service, observes that members of Congress became interested in potential immigration categories and public benefits for Afghan nationals in the United States. In a report for the Congressional Research Service, Kolker notes that Afghan nationals admitted as refugees, asylees, or SIV holders may be eligible for work authorization, a prescribed path to legal permanent residency, and food, medical, and cash assistance. By contrast, Kolker finds that Afghans with Temporary Protected Status or Deferred Enforced Departure status are ineligible for most public benefits, except for some emergency services.

IN THE NEWS

• The U.S. Court of Appeals for the Fifth Circuit ruled that certain efforts undertaken by the Biden Administration against social media companies likely violated the First Amendment, such as threatening anti-trust action if the companies did not moderate content related to election fraud and COVID-19. The court, however, limited the ruling to activity designed to “coerce or significantly encourage” certain moderation by social media companies. Louisiana Attorney General Jeff Landry argued that the ruling was a “major win against censorship.” The Biden Administration is reviewing the court’s decision.
• New Mexico Governor Michelle Lujan Grisham signed an emergency order banning citizens who are not law enforcement or security officers from carrying firearms on public property in Bernalillo County for the next 30 days. The emergency order follows Grisham’s executive order declaring that gun violence was a public health emergency. Grisham’s orders responded to recent deaths by gun violence in New Mexico, including the deaths of three minors since July. Bernalillo County Sheriff John Allen expressed concern that the order would keep citizens from exercising “their constitutional right to self-defense,” while Grisham argued that the measure is necessary because New Mexicans are “threatened by the prospect of violence at every turn.”
• A federal judge declared that the enactment of the Deferred Action for Childhood Arrivals program exceeded the authority of the executive branch. The ruling comes after the Biden Administration issued a 2022 final rule designed to bolster the legal status of the Deferred Action program. The judge argued that the revised program was the same as the program previously struck down by the U.S. Court of Appeals for the Fifth Circuit, but clarified that the program could continue administering benefits for current recipients. The Biden Administration disagreed with the decision and vowed to “continue to defend this critical policy from legal challenges.”
• In a unanimous decision, the U.S. Court of Appeals for the D.C. Circuit vacated a 2022 U.S. Consumer Product Safety Commission (CPSC) rule governing cords on custom window coverings, which the CPSC found posed a strangulation risk to children. The court determined that the CPSC violated the Administrative Procedure Act by acting arbitrarily and breaching notice-and-comment requirements when the Commission failed to disclose individual incident reports used to perform a cost-benefit analysis. The court also concluded that the CPSC’s choice have the rule take effect 180 days after it was published lacked “reasoned decision making.”
• The California legislature voted to mandate that most California elections use state-approved ballot counting machines. The bill targets the conservative Shashta County, where local officials voted to end their contract with Dominion Voting Systems based on unsubstantiated theories connecting Dominion machines to election fraud. If signed into law, the bill would ban hand-counting for elections with more than 1,000 registered voters and would limit a county’s ability to terminate voting system contracts. Assemblymember Gail Pellerin, who authored the bill, contended that “hand counts are complex, imprecise, expensive and resource intensive.”
• The California State Senate passed a bill that would require corporations operating within the state that make more than $1 billion annually to disclose their carbon emissions. The bill would require companies to disclose emissions that result from corporate operations, the company’s supply chain, and consumers. State Senator Scott Wiener applauded the passage of the bill, arguing it would allow California to “once again lead the nation with this ambitious step to tackle the climate crisis.” Opponents of the bill argued that the bill would “push publicly traded companies into the role of enforcing emissions targets beyond their control.”
• The Executive Office for Immigration Review (EOIR) issued a proposed rule granting greater discretion to immigration judges and the Board of Immigration Appeals over the management of their dockets. The proposed rule formalizes procedures such as issuing extensions or pauses to parties. The agency issued the proposed rule after the U.S. District Court for the Northern District of California granted a nationwide injunction barring EOIR from implementing an earlier rule limiting the discretion of immigration judges and the Board of Immigration Appeals in managing their caseloads. EOIR suggested that the new rule will “promote the efficient and expeditious adjudication of cases.”
• The Office of Information and Regulatory Affairs received a proposed rule from the U.S. Department of Labor designed to minimize financial advisers’ conflicts of interest and to redefine financial investment advice under the Employee Retirement Income Security Act of 1974. The rule is aimed at limiting the ways that investment advisors are compensated to reduce opportunities for conflicts of interests. The Labor Department also wrote in its agenda that the rule will evaluate existing exemptions to better protect employee benefit plans and IRA investors.

WHAT WE’RE READING THIS WEEK

• In a new paper, Aaron L. Nielson, Professor of Law at Brigham Young University Law School, Christopher J. Walker, Professor of Law at University of Michigan Law School, and Melissa F. Wasserman, Professor of Law at The University of Texas at Austin School of Law, outlined how the independence of agency adjudication is threatened by political control. Nielsen and his coauthors argued that many prominent reforms face significant barriers to implementation. Instead, Nielsen and his coauthors suggested that Congress should exercise its “Anti-Removal” powers to raise the political costs of presidential interference, and that the Executive Branch should adopt self-imposed restrictions on the  appointment and removal of agency heads..
• In a policy analysis issued by the Cato Institute, Jeffrey A. Singer, a senior fellow at Cato and Sofia Hamilton, a health policy research associate at Cato, assessed policies targeting the treatment of opioid use disorder (OUD) with methadone, a synthetic opioid. Singer and Hamilton suggested that regulations allowing only government-approved opioid treatment programs to distribute methadone to individuals with OUD create barriers to patient recovery and stigmatize the disorder. Singer and Hamilton proposed that primary care physicians be allowed to prescribe methadone and use their expertise to develop treatment plans responsive to each patient’s situation.
• In a recent Brookings Institution article, Blair Levin, a nonresident senior fellow at Brookings Metro, and Tom Wheeler, a visiting fellow at the Center for Technology Innovation at Brookings, cautioned that any effort by Congress to authorize the Biden Administration to regulate artificial intelligence may be struck down by the Supreme Court under the Major Questions Doctrine, which requires an administrative agency seeking to act on an issue of high “economic and political significance” to have “clear congressional authorization.” Levin and Wheeler argued that current proposals to regulate artificial intelligence may not be specific enough under the Doctrine, but they noted this could be avoided if the Administration and Congress elected to only do business with artificial intelligence firms that adopt a set of voluntary standards.

EDITOR’S CHOICE

• In an essay in The Regulatory Review, Jennifer Doleac, an associate professor of economics at Texas A&M University and the director of the Justice Tech Lab, argued that gun control regulation is not the only measure that can curb gun violence deaths. Doleac contended that the effects of gun control regulation on gun ownership and public safety are unclear. Doleac suggested policymakers consider other efforts, such as creating summer job programs for teenagers and increasing access to mental health care for at-risk young men, to reduce teenage mortality and violent crime.

Millions of people each year navigate federal agencies’ adjudication systems to access benefits and services, answer charges of legal noncompliance, and settle disputes with third parties, among other actions. Individuals participating in these systems often expend substantial time and resources completing forms, submitting evidence and arguments, and monitoring their cases. And agencies expend substantial time and resources processing submissions, managing dockets, and providing case updates.

Agencies that engage in adjudication face many challenges in discharging their obligations to parties that come before them, most significantly how to balance the efficiency of their adjudicative systems against the quality of the decisions issued. As one approach to improve efficiency and accuracy, an agency can use an electronic case management system (eCMS) to organize evidence and other critical documents required for its adjudicative proceedings and make those documents more accessible to their employees.

But internal productivity, case flow, consistency, and quality are only half of an adjudication system. In recent years, members of the public have spent billions of hours annually on paperwork for executive agencies. By opening their eCMSs to members of the public, their appointed representatives, and other persons involved in adjudicatory proceedings, agencies can further promote productivity, shorten processing time, and improve the consistency and quality of the adjudication experience.

To achieve these goals, and to fulfill legal obligations to develop electronic business processes, agencies have increasingly deployed online processes by which parties, their representatives, and other interested persons can perform routine tasks such as filing, serving, and viewing forms, briefs, evidence, and other case records or materials.

In recognition of these developments, the Administrative Conference of the United States (ACUS) engaged me to prepare a report on online processes in agency adjudication. This project built off of two prior ACUS studies, which resulted in ACUS Recommendations 2018-3 and 2021-10. These earlier projects studied how agency personnel could use electronic case management systems to increase efficiency in case processing and increase quality by capturing and utilizing structured data. Both of these recommendations were discussed previously in The Regulatory Review.

The most recent project built on those earlier projects by looking closely at how agencies could open their systems to outside users. By doing so, agencies could increase efficiency by allowing users to input documents, other files, and collected data into the system directly, eliminating the need for parties to print submissions and fax or mail them to the agency, as well as eliminating the need for agency staff to scan mailed or faxed submissions and ensure they are associated with the proper case file. The systems could also communicate to those users information housed in eCMSs, such as the status of cases, giving immediate answers to user queries and eliminating the need for agency staff to field status calls. In this sense, the project was inspired by Executive Order 14058, which encouraged agencies to digitize services and forms and to reduce the administrative burden on both the public and agency staff.

Some agencies began developing these tools many years ago, but the COVID-19 pandemic spurred even more to do so in recent years. As such, my recent report to ACUS serves as a first draft of a very recent history—a taxonomy of systems that agencies have deployed, often very quickly and under difficult operational circumstances.

This history continues to develop rapidly. Just this summer, several new developments have emerged. The U.S. Department of Veterans Affairs published a proposed rule that would allow electronic notifications of claims decisions. The Social Security Administration issued an emergency message to notify technicians about a new online service option that customers can use to submit certain evidence and forms electronically. The Federal Labor Relations Authority implemented an interim final rule to enable parties to permit the agency to serve them by email. And the U.S. Senate reported a measure that would establish a temporary task force to coordinate efforts to develop digital identity verification systems.

My report to ACUS addressed these types of proposed tools—and ACUS Recommendation 2023-4, adopted June 15^th, covers proposed best practices for them. In researching my report, I spoke to nearly two dozen agency staff members from a dozen agencies—including adjudicators, prosecuting attorneys, and legal assistants. I was heartened to hear that all of them were enthusiastic about the systems that their agencies had built, and they felt that those systems had improved efficiency and quality for their agencies.

But I was even more impressed when I spoke with a dozen representatives who practiced before some of our most high-volume adjudicative systems, who were also extremely enthusiastic about the systems that agencies had built and how those systems improved their experiences in practicing before those agencies.

That said, everyone agreed that there was still work to be done, and my interviews identified many improvements that could be made.

Generally speaking, agencies have developed three types of online adjudicatory processes. First, and most commonly, they have created online means for filing motions, evidence, and other adjudicatory documents.

Second, many agencies have created online customer portals. At the simplest level, these portals provide an easy way to file electronically, such as via a web interface. But many agencies have also provided additional functions with their portals, such as tools for case management, updates on case status, and even estimates of the expected time until the next stage of a proceeding. Also, many of these customer portals allow users to change addresses, add or remove representatives associated with the case, and to pay filing fees or provide direct-deposit information.

Third, many agencies have also created online forms and templates. These often comprise fillable PDF documents that can be used for common filings, such as notices of appearance or subpoena requests, or even more involved tasks, such as completing applications for benefits or immigration. Some agencies have begun converting their PDF forms to online questionnaires. Some of these online systems can prepopulate answers with information already in the agency’s possession. Some use decision trees, so that early answers by users reduce the options of subsequent questions. For example, if users answer that they are married, they may be asked questions about their spouses; however, if they answer that they are not married, questions about spouses are never presented.

Agencies grouped themselves into three categories as to how they developed and used online tools and processes. Agencies without eCMSs tended to adapt their prior paper mailing processes to an email filing-and-service system. Formal adjudicative systems with back-end eCMSs tended to operate customer portals that offered little functionality beyond electronic filing. Mass adjudication systems, such as those making determinations on benefits applications, offered the most robust of customer portals.

The findings from my report underlie ACUS’s Recommendation 2023-4. Directed to all federal agencies, this recommendation provides best practices for all online processes at any stage of development. In many respects, ACUS’s recommendation can be read as a roadmap that agencies can follow, no matter how advanced their systems.

Agencies without eCMSs will find best practices for establishing a flexible, reliable system for electronic filing and service by email or secure file transfer protocol. Agencies with eCMSs will find best practices for developing and then expanding customer-facing electronic-filing systems that will be accessible to parties that come before them. They can then maximize the collection of useful, structured data.

Agencies that prefer to build more robust customer-service web portals will find best practices for tools that have been shown in pilot studies to encourage engagement and reduce frustration by users.

Like my underlying report, ACUS’s recommendation does not tell agencies what specific process is best for their adjudicatory proceedings. That question is best answered by internal agency officials who know the resources and needs of their system. But agencies that come to the ACUS recommendation knowing their needs and capacities will find helpful advice on next steps to develop their processes, drawn from the experiences of their fellow adjudicative agencies.