Supreme Court to review FERC demand response rule
Energize Weekly, March 13, 2015
The U.S. Supreme Court has agreed to hear a challenge to the Federal Energy Regulatory Commission (FERC) Order 745, which calls on electricity grid operators to provide incentives for users to reduce consumption during peak times.
FERC had appealed a previous court ruling striking down Order 745, a 2011 rule which creates higher compensation levels for large power users who cut back their consumption levels at peak demand times. FERC justified the rule by saying it incentivizes investments in energy efficiency.
“The integration of demand response is important to the nation’s competitive wholesale electricity markets and reliable electric service,” said FERC chairman Norman Bay. The lower court decision said that FERC had overstepped its authority with the rule, suggesting that the incentives should be provided at the state level. The challenge was instigated by the Electricity Power Supply Association, other industry trade groups representing electricity suppliers and utilities, as well as PPL Corp.
The previous ruling threw electricity markets into a state of legal uncertainty, with FERC denying one operator’s plan to include demand response in capacity market auctions as a stop-gap option. The intervention of the nation’s highest court was seen as a welcome relief by grid operators, environmental groups, demand response providers, and other groups which supported the rule.
“The announcement is a good sign that the Supreme Court wants to ensure a workable division of authority between states and the federal government over our electric grid, which is sorely needed considering the flow of electricity doesn’t adhere to state lines,” said Allison Clements, senior attorney with Natural Resources Defense Council.
Though the case is regarding a specific rule designed to oversee incorporation of demand response programs, the questions the court will look at have more wide-ranging implications. Specifically, the court will look at whether FERC reasonably concluded that it has authority to regulate the rules used by operators of wholesale electricity markets to pay for reductions in electricity consumption. If the court rules that the federal government doesn’t have this authority, it could cause havoc as different states enact different policies to incorporate demand response. This may force some demand response providers to leave the market, depending on what the conditions are like. Other states like Texas, New York and California, which have their own independent system operators, are already in the midst of making major policy changes to encourage demand response and distributed energy resources.
The case will be heard during the court’s October term.