Supreme Court Overturns DC Circuit, OKs FERC Order 745

by | Jan 26, 2016

supreme courtOverlapping constituencies – including industrial and commercial energy buyers, aggregated groups of consumers and the advanced energy distribution ecosystem — scored a big win yesterday as the Supreme Court ruled that the Federal Energy Regulatory Commission (FERC) had acted within its powers in setting the rules for demand response programs. The court also approved the specific rules set in FERC Order 745.

The decision was a boon for several reasons, according to Katherine Hamilton, the Executive Director of the Advanced Energy Management Alliance. “This ruling benefits consumers by lowering electricity costs for everyone, including those who participate in demand response programs; benefits states by giving them more choices in managing their state energy use; benefits the grid by ensuring reliable resources are ready during the hottest and coldest days of the year; and benefits the environment by avoiding the use of inefficient and polluting energy resources.”

The decision was 6-2, with Antonin Scalia and Clarence Thomas dissenting (Samuel Alito recused himself). FERC Order 745 says that participating entities in an authorized demand response program must be compensated at the wholesale generation rate for the electricity it saves.

The court focused on two issues. At the most basic – and arguably more important — level, the case was about whether or not the federal government has jurisdiction over such programs. It also ruled on the specific approach of equating the credit given to participants with the prices of wholesale generation, according to Hamilton.

The Utility Dive story on the decision clarified the jurisdictional issue. Wholesale energy markets cross state lines, but retail markets exist within each of these states. The Electric Power Supply Association (EPSA) argued that FERC Order 745 was an overreach and unduly usurped states’ ability to administer retail markets according to the story. That argument was accepted in 2014. “The lower court, the U.S. Court of Appeals for the D.C. Circuit, had determined that because the providers of demand response are actually customers like you, me or Walmart buying electricity from our local utilities, that states and not the federal government should have exclusive authority to incentivize demand response,” Allison Clements, the Director of the Sustainable FERC Project of the Natural Resources Defense Council, told Energy Manager Today.

Yesterday’s reversal – and, especially, the wide margin – came as a pleasant surprise to some. “I think many of us are so invested in demand response because of its cost-saving, grid reliability and clean energy benefits that we were bracing ourselves for the worst, Clements wrote. “Happily we were proven wrong in the form of a lucid, commonsense opinion supported by 6 of the 8 justices considering the case.”

Brian Zimmet, a partner at the law firm of Venable LLP, suggested that things didn’t look good when the case was heard and agreed that the outcome was better than he expected. “The coverage of the oral argument back in October suggested that the justices were divided on the demand response issue along the conservative-liberal lines that tend to characterize other cases, and that there was skepticism towards the FERC position on the part of the conservative justices,” he told Energy Manager Today. “So there was some expectation, I think, that the Court was likely to uphold the D.C. Circuit decision – and a 6-2 decision the other way was a bit of a surprise.”

A case generally reaches the Supreme Court because the justices feel that it has broader ramifications to society. Yesterday’s decision is no exception. “Since this decision protects FERC’s jurisdiction to establish market products that enable the distribution side to participate in the wholesale market, FERC’s ability to open up new competitive markets has been affirmed for technologies and applications that can provide services to the grid,” Hamilton wrote. “These technologies could include demand response, energy storage, energy efficiency, distributed solar, and other innovative resources.”

All of this should be a message to the states, J.R. Tolbert, the Advanced Energy Economy’s Senior Director of State Policy, told Energy Manager Today. “Today’s decision…should serve as a strong signal to the states. The highest court in the land has spoken and demand response is here to stay. Now is the time for the states to act by setting their own peak demand reduction targets that will further add benefits to utilities and ratepayers as a result of DR’s participation in the wholesale market.”

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