The Supreme Court Gives a Big Win to Energy Conservation and the Environment

Good news for everyone who likes clean energy, lower electric prices, and more local control of energy sources!  A US Supreme Court decision on Monday upheld the Federal Energy Regulatory Commission (FERC)’s  Order 745, concluding that wholesale demand response programs are within FERC’s jurisdiction.  In a 6-2 decision, the Court confirmed that grid operators can do more to promote cleaner alternatives to simply building more power plants – saving consumers money, cutting greenhouse gas emissions, and preventing blackouts.

A bit of background:  in 2011, the FERC put out an order to promote “demand response,” which pays big energy users and groups of smaller consumers to cut their consumption during critical peak hours. This means the grid operators do not need to call upon the most expensive and dirtiest peaking generators to make more power.  Because demand response is playing the same role as generation in this market, the FERC rule dictated that demand response should be paid in the same way as generation.  Since this saves a lot of money in energy costs, reduces the need to build power plants and transmission lines, and helps the grid stay reliable and stable, it all seems like a great idea, right?

Only if it’s legal.  Opponents of the rule, including industry groups for the power generators argued that the rule was unfair and, more importantly, beyond FERC’s jurisdiction.  In a nutshell, the Federal Power Act divides authority over electricity sales between wholesale (FERC-jurisdiction) markets and retail (state jurisdiction) markets.  The DC Circuit determined in May 2014 that because demand response made retail customers change their behavior, by dictating what participants in demand response programs were paid, FERC had overstepped their jurisdictional limits to regulate states’ retail markets.

Monday, the Supreme Court disagreed, holding that when FERC regulates what takes place on the wholesale market, and works to improve how that market runs, their action is jurisdictional, no matter the effect on retail rates.   Since Order 745 regulated bids in the wholesale market and the prices paid by the wholesale market, it stands firmly in FERC’s jurisdiction.

This decision came as a surprise to many who had predicted a 4-4 split, which would allow the DC Circuit decision to stand.  But by supporting demand response and FERC’s jurisdiction, the Supreme Court potentially paves the way to grid operators being able to offer even farther ranging programs to support a clean, efficient grid and the environmental benefits that come with it.

Amy Boyd is Senior Attorney in Acadia Center’s Boston office. She works on energy, transportation and climate change issues in Massachusetts and regionally. Amy came to Acadia Center from Foley Hoag LLP in Boston where she had been an associate in the Environmental Practice Group & Administrative Department since 2006.