The Supreme Court, in a 6-2 landmark decision issued January 25, 2016, in Fed. Energy Regulatory Comm’n v. Elec. Power Supply Ass’n, 136 S.Ct. 760, 193 L.Ed.2d 661 (2016), upheld FERC Order No. 745 and ruled that the Federal Energy Regulatory Commission (FERC) has authority to establish demand response rules and rates in wholesale power markets. FERC’s rules call for payments to large energy users that reduce their electric usage during periods of high electricity demand.
The Court of Appeals for the District of Columbia Circuit had vacated Order No. 745, ruling among other things that FERC had overstepped its authority and directly interfered with the states’ exclusive right to regulate the retail electricity market.
The Supreme Court disagreed sharply with the lower court. It ruled that demand response aggregation under the Order involves practices that directly affect wholesale rates: demand response lowers wholesale electricity prices by displacing higher-priced electric generation. The Court also upheld FERC’s decision to compensate demand response provider at the same rate that is paid to electric power generators so long as the so-called “net benefits test” is met.
Several national demand response providers petitioned the Supreme Court along with FERC to defend the Order and federal authority over demand response payments. Husch Blackwell’s Marvin Griff represented one of the demand response petitioners in this case.
What This Means to You
The Supreme Court decision brings welcome certainty to an area of FERC regulation that has been under attack for many years. Manufacturers, hospitals, and shopping centers are just some of the consumers who can benefit from these programs.
But demand response payments by wholesale market operators are just one of the pricing components under a complex regulatory regime potentially available to large energy users. Our federal regulatory team can help you assess and receive the benefits of this and other federally regulated wholesale market initiatives to best meet your energy needs.
For additional information regarding how the ruling might affect your business or your clients, please contact James Hoecker, former FERC chairman and Senior Counsel and Energy Strategist with Husch Blackwell, at 202.378.2316.