Supreme Court agrees to hear demand response case

OREANDA-NEWS. The US Supreme Court has agreed to review an appeals court ruling that has cast doubt on the legality of demand response programs in wholesale power markets that pay customers to cut electricity usage in periods of high demand.

The high court today not only agreed to review if the Federal Energy Regulatory Commission (FERC) can regulate demand response, but also expanded its review into whether the appeals court "erred" when it found the methodology setting how the resource should be paid in wholesale energy markets was arbitrary and capricious.

The decision marks a significant victory for President Barack Obama's administration, which had appealed the ruling to the Supreme Court. Proponents of demand response are concerned that the appeals court ruling would push those load management resources to the sidelines of the power markets, costing customers billions of dollars a year in higher capacity costs and increasing the risk of blackouts.

Grid operators such as the PJM Interconnection and the Independent System Operator of New England have come to rely on demand response to meet their capacity needs, a growth fueled in part by aggregators such as EnerNOC that recruit industrial and commercial customers that agree to curb their power usage on days of peak demand.

The court ruling in question came from the DC Circuit Court of Appeals, which in a split 2-1 ruling last year found paying customers to cut their power use was a "retail sale" that was outside the jurisdiction of FERC and could only be regulated by states. The Obama administration appealed this part of the ruling, saying the commission had clear authority over the resource because of its substantial effects on power markets.

The appeals court said even if FERC could regulate demand response, its requirements in a rule called Order 745 for how much the resource should be paid for providing so-called "negawatts" in regional markets was arbitrary and capricious. The Obama administration did not specifically ask the court to review this part of the ruling, but the Supreme Court decided it would anyway.

The court's decision to take the case will preserve a stay that has stopped the appeals court ruling from taking effect. FERC has two pending complaints citing the ruling that have attempted to block demand response from having a role in PJM and New England's grid. But FERC has delayed acting on the petitions given the continued legal uncertainty.

FERC member Philip Moeller last week said that there was a "certain path" the commission could go on if the Supreme Court agreed to take the case, but a decision to reject the case would give the commission "options to go a completely different direction."

FERC chairman Norman Bay said he was pleased the Supreme Court had agreed to take the case.

"The integration of demand response is important to the nation's competitive wholesale electricity markets and reliable electric service," Bay said.