Supreme Court to Issue FERC Demand Response Decision in 2016

Supreme CourtWith the Supreme Court in recess until January 11, it seems that the year will close without a ruling on whether the Federal Energy Regulatory Commission (FERC) overstepped its authority in issuing Order 745, which directs ISOs and RTOs to incentivize demand reduction by compensating cost-effective demand response resources at the market price for energy.

The Supreme Court agreed to hear the case after the U.S. Court of Appeals for the D.C. Circuit, in a 2-1 decision, vacated Order 745 on the grounds that it was an improper attempt by FERC to regulate the retail electricity market, which the Federal Power Act (FPA) leaves to the states:

Demand response—simply put—is part of the retail market. It involves retail customers, their decision whether to purchase at retail, and the levels of retail electricity consumption.

Dissenting, Judge Edwards wrote that demand response could conceivably be considered a wholesale issue, since Order 745 aims to ensure that compensated resources actually displace generation and lower the market-clearing price for wholesale electricity. He argued that because the FPA grants FERC the authority to regulate practices affecting wholesale energy prices, the court should defer to the agency’s interpretation and application of the statute.

The parties presented oral argument to the Court in October. Justice Alito recused himself, and so a 4-4 decision would leave standing the D.C. Circuit’s vacatur of the rule.

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