Obama admin presses Supreme Court to revive demand-response regs

Source: Jeremy P. Jacobs, E&E reporter • Posted: Tuesday, July 14, 2015

The Obama administration on Friday urged the Supreme Court to reverse a lower-court ruling invalidating a major initiative to encourage reduced electricity consumption.

Solicitor General Donald Verrilli argued in court documents that the federal appeals court ruling misread the Federal Power Act and that the Federal Energy Regulatory Commission deserves deference in its interpretation of the law.

At issue is FERC’s 2011 Order 745, which requires grid operators to compensate electricity users for committing to not use power at peak times at the same rate as the operators purchase electricity from generators.

The practice, known as demand response, seeks to establish parity between selling electricity into the grid and reducing electricity use. The order, hailed by environmental groups, primarily affected third-party demand-response providers, which pool unused energy from facilities like condominiums, hospitals, universities and factories.

Grid operators and power providers challenged the regime in court, claiming that the regulations infringe on retail electricity sales, such as interactions with ratepayers like homeowners. The Federal Power Act, they argued, allows FERC regulation only of wholesale electricity sales, such as those from the grid to a power provider for resale. Retail, they contended, is left to the states to regulate.

The U.S. Court of Appeals for the District of Columbia Circuit agreed in May 2014 in a split decision that vacated the regulations (Greenwire, May 23, 2014).

Verrilli and the Obama administration appealed the case to the Supreme Court, and the justices granted review (Greenwire, May 4).

In a brief filed Friday, Verrilli argued that the D.C. Circuit’s decision “erred” because the Federal Power Act explicitly grants FERC authority to regulate the “level of compensation that wholesale-market operators pay for demand-response commitments.”

“That effect could not be more substantial and direct,” he wrote. “The payments are an integral part of setting rates and balancing supply and demand in wholesale auction markets, and they are recouped directly from wholesale purchasers through wholesale rates.”

Verrilli added that the prohibition that challengers contend exists regarding FERC regulation of retail rates doesn’t exist.

“If a practice directly affects wholesale rates, FERC has the authority — and duty — to ensure that the practice is just and reasonable,” he wrote, “regardless of whether the practice or FERC’s regulatory approach also significantly affects the retail market.”

Lastly, Verrilli argued that FERC’s reading of the law is entitled to deference from the court.

The Supreme Court will hear arguments in FERC v. Electric Power Supply Association when it returns from recess in October.

Click here for the brief.