Supreme Court Hands Demand Response a Big Legal Win in Market Battle with Generators

Jan. 25, 2016
The Supreme Court today handed demand response a big legal win in a landmark battle with generators about wholesale market payments and FERC jurisdiction.

The U.S. Supreme Court handed demand response a big legal win today in a landmark battle over making energy savings as valuable in wholesale markets as energy production.

The high court decision removed a lower court ruling that had threatened to stymie use of demand response, a mechanism where energy users are paid to reduce consumption when the grid is under strain.

“Today’s decision is a tremendous win for all energy consumers, for the economy, and for the environment. We commend the court and look forward to continuing to help customers actively participate in our nation’s wholesale markets,” said Tim Healy, chairman and CEO of EnerNOC, a demand response company that was a party to the case.

At issue was Federal Energy Regulatory Commission (FERC) Order 745 that put demand response on the same financial footing as generation in regional wholesale power markets.

The Electric Power Supply Association and a group of generators had challenged the FERC order, contending that the federal agency exceeded its jurisdiction in setting the wholesale payment for demand response. FERC oversees wholesale electricity markets, while states regulate the retail markets.

A lower court backed the generators in May 2014. But in a 6-2 decision, the Supreme Court today overturned the decision. FERC was acting within its authority because demand response is a wholesale market function, said the high court.

“Wholesale demand response is all about reducing wholesale rates; so too the rules and practices that determine how those programs operate,” wrote Justice Elena Kagen in delivering the court’s majority decision. “That is particularly true here, as the formula for compensating demand response necessarily lowers wholesale electricity prices by displacing higher-priced generation bids.”

With profits at stake for both, many in the energy industry have been eager for the Supreme Court ruling.

In giving demand response a significant legal win, the Supreme Court also gave a boost to energy users, according to environmental and consumer groups.  Energy users who participate in demand response receive a payment for reducing their energy use when the grid is under strain. Demand response has largely been the domain of manufacturers and other large energy consumers for several years. But new technologies increasingly open the door for residential customers to participate.

“The Supreme Court’s decision is great news for consumers and the environment. It gives consumers more opportunity to save, and even make, money through smarter electricity use,” said Allison Clements, director of the Sustainable FERC Coalition housed at the Natural Resources Defense Council.

Jill Tauber, managing attorney of clean energy at Earthjustice, said that the decision removes “barriers to this vital clean energy resource in wholesale energy markets” and fulfills FERC’s “responsibility to ensure just and reasonable rates and enhance reliability.”

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About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

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