Breaking Down the Supreme Court’s Landmark Decision on FERC Order 745: A Win for Consumers and the Future of Clean Energy

February 1, 2016


After the New England Patriots’ crushing loss to the Broncos on Sunday, January 25, 2016, there was at least a ray of sunshine the next day for consumers and clean energy enthusiasts when the Supreme Court issued its decision upholding the Federal Energy Regulatory Commission’s (FERC) authority to regulate demand response programs in wholesale markets. The crux of the Supreme Court’s decision in Federal Energy Regulatory Commission v. Electric Power Supply Association, is that demand response programs can participate in wholesale electricity markets based on rules structured by FERC. So, what exactly does that mean?

Simply put, demand response is a way of coordinating consumers to not use energy at certain peak times. Demand response programs pay consumers for a commitment to curtail their use of power at peak times so as to curb wholesale rates and prevent grid breakdowns. This sale of not-power – or “negawatts” – in turn, helps reduce carbon emissions and the price of electricity.

At the center of this landmark case is Order 745 issued in 2011 by FERC, the agency that regulates the country’s high voltage electric transmission grid. Order 745 set compensation for demand response in wholesale energy markets, making the value of demand response equal to that of electricity in the market. In other words, Order 745 makes the value of a negawatt equal to that of a megawatt.

The Electric Power Supply Association (EPSA) took issue with Order 745 because EPSA represents power producers who were threatened by demand response’s cheaper alternative to power generation. EPSA sued FERC alleging that FERC only has jurisdiction over federal power markets. By setting the compensation rate for demand response customers, EPSA alleged that FERC was interfering with retail electricity, which falls under state control. In 2013, the D.C. Circuit Court of Appeals sided with EPSA and vacated Order 745. However, Monday’s Supreme Court decision overturned the Circuit Court’s ruling and definitively sided with FERC.

The Supreme Court’s decision, delivered by Justice Elena Kagen, concluded that FERC is within its powers to regulate the wholesale market even when it results in indirect impacts on state-controlled retail market conditions. Because the purpose of the Federal Power Act is to protect against excessive prices and ensure smooth grid operation, the Supreme Court found that demand response is necessarily within the federal domain.

This decision is a big win for the future of clean energy because it paves the way for regional energy markets to maximize grid efficiency through demand response resources that can help achieve a clean, affordable, and reliable electric grid. According to Jon Wellinghoff, the former FERC chief who headed the commission when it issued Order 745, this decision will help drive down wholesale energy prices by billions of dollars each year. And the ruling will be a boon for consumer side energy technology, expanding opportunities for digital controls, solar PV, and battery storage. The bottom line is that this decision is a coup in the fight against climate change: it will enhance efforts to keep down energy costs and reduce carbon and greenhouse gas emissions. Now that’s a winning goal for everyone!

This blog was prepared by Julie Barry and Cailin Burke. For more information, contact Julie, a partner in the firm’s Renewable Energy Practice Group, at 617-456-8090.

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