Supreme Court Upholds “Demand Response” Regulation

The Supreme Court has issued a ruling cementing the Federal Energy Regulatory Commission’s authority to regulate demand response in utilities markets.

Demand response refers to customers changing their electricity usage, in response to higher electric prices or in response to an incentive program designed to reduce electricity use when wholesale market prices are high or to alleviate pressure on the power grid.

The court decision effectively overturned an earlier decision by the U.S. Court of Appeals for the District of Columbia Circuit which vacated FERC’s Order 745. This order gave them authority to regulate wholesale market transactions relating to demand response, but only wholesale transactions – the D.C. Circuit’s argument was that the agency had overstepped its legal authority and was attempting to regulate retail utilities markets, which is the exclusive legal right of the states.

The Electric Power Supply Association, the national trade association for power suppliers, argued that Order 745 crossed over into regulation of retail markets, over which they do not have jurisdiction.

A majority of the Supreme Court (6-2, with Justice Alito recusing himself) disagreed with D.C. Circuit, holding that Order 745 only addresses the wholesale market (and that demand response is primarily concerned with wholesale markets). Also, they stated that FERC is allowed to regulate the wholesale markets even if it has indirect impacts on the retail markets.

The dissent, written by Justice Antonin Scalia, argued that the Federal Power Act prohibits FERC regulating “any other sale of electric energy” in wholesale markets, pointing out that most demand response customers are energy consumers rather than resellers.

This decision will benefit demand response users and those who utilize alternative energy sources such as solar, but will negatively affect large-scale electric generators and suppliers, including electric companies.

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