FERC commissioners at odds over high-stakes court case

Source: Hannah Northey, E&E reporter • Posted: Friday, June 13, 2014

The Federal Energy Regulatory Commission’s acting chairwoman’s announcement yesterday that the agency intends to fight a court ruling that vacated a key demand-response rule has drawn less-than-enthusiastic reactions from FERC’s two Republican commissioners.

Acting Chairwoman Cheryl LaFleur said FERC will ask a federal appeals court to reconsider its decision that threw out FERC’s Order 745, which provided incentives for electricity users to consume less power, a practice dubbed “demand response.”

The commission said it would ask the U.S. Court of Appeals for the District of Columbia Circuit to reconsider the case en banc, meaning before all the circuit court’s judges.

Last month, the court held that FERC overstepped its authority under the Federal Power Act in pushing through Order 745, an effort to further eliminate barriers for demand-response participants into the wholesale markets. The goal of the regulation, which was cheered by environmental groups, was to establish parity between demand-response providers — which pool reduced energy usage by condominiums, hospitals and universities — and retail electricity providers (Greenwire, May 23).

Commissioner Philip Moeller said in an email that there’s an ongoing legal debate over whether the FERC chief may make litigation strategy decisions unilaterally or whether a vote of the entire commission is required, as has been the practice during his tenure on the commission.

“Regardless, I can support the rehearing request on Order 745 relating to the legal uncertainty over jurisdictional issues but I will oppose such action vigorously if it entails the compensation issue,” Moeller wrote.

“We are entering a period of extreme stress in the electricity sector, as the generation fleet goes through a massive transition in a very short time frame,” he said. “Properly compensated Demand Response can play an important role during this transition.”

Commissioner Tony Clark in a statement thanked LaFleur for consulting him but said he backed the court’s finding that the rule erred in requiring demand-response providers to be compensated in the energy markets at the same rate as an electric supply offer.

“Most important, that portion of the order does not meet the burden required of petitioners for en banc review,” Clark said. “Specifically, this is not an issue of such exceptional importance that it merits review nor does it create a glaring inconsistency with DC Circuit or US Supreme Court precedent.”

Clark said the court was also “wholly correct” in ruling against FERC’s pricing mechanism for demand response in Order 745.

“It fails to recognize the costs that are avoided by consumers when they choose not to consume power and thus creates distortions in the energy marketplace to the detriment of traditional supply resources relying on wholesale market prices,” Clark said. “In Order No. 745, the commission failed to adequately address this problem, even though Commissioner Moeller’s dissent thoroughly identified the issue.”

Clark said the more important issue the court tackled was whether FERC had exceeded its statutory authority under the Federal Power Act (FPA) given the nature of demand response itself, adding that the court’s majority opinion was persuasive.

“The commission’s assertion of jurisdiction over ‘wholesale demand response’ was always rather bold, as explained by the court’s majority. There simply has to be a jurisdictional ‘bridge too far’ for FERC under the FPA,” he said. “The line the court drew, distinguishing between wholesale supply sales and retail consumption/compensation, is not unreasonable, though it could have far-reaching impacts.”

Clark said the commission’s “predicament” is the result of a flawed regulatory construct and criticized the agency for allowing “the pendulum to swing so far” and not taking a more measured approach to demand response. He also called on the commission to enable “functioning price-responsive demand.”

“The natural place for DR is on the retail side of the markets, where customers can observe electricity prices and make a choice about whether to consume energy or to curtail their demand for that energy,” Clark said. “By necessity under the FPA, this will require FERC to actively engage the states, which have the retail jurisdiction FERC lacks.”