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Supreme Court Examines Demand Response

October 16, 2015

This week, the U.S. Supreme Court held oral arguments regarding federal regulation that could have important influence on the electricity markets and energy efficiency. The regulation in question concerns what is known in the power sector as “demand response.” The Federal Energy Regulatory Commission (FERC), with the weight of the Obama Administration behind it, hopes to use demand response as a way to reduce consumption, lower energy prices, improve generation and grid reliability, as well as encouraging clean energy.

Demand response is the practice of having power suppliers pay users to reduce consumption during peak times. While this practice incentivizes customers to reduce their usage and therein by driving down electric rates. It also takes a sizable cut out of the profits of these electric grid operators and power suppliers.   The demand response rule currently remains in effect while the case continues. A ruling is expected to be due in June 2016.

The case, Federal Energy Regulatory Commission (FERC) v. Electric Power Supply Association, pits the government’s regulator against power companies who are seeking to protect their profit margin. In May 2014, the U.S. Court of Appeals for the District of Columbia Circuit threw out the “demand response” rule and FERC is seeking to overturn the ruling with this appeal.   On the opposite side, the Electric Power Supply Association, PPL Corp along with other trade groups are pushing to keep the regulation of the books. Peak pricing has historically been a profit generator in the utility sector. It has also held a great influence on pricing and rates.   The regulation would likely reduce demand and cut into profits for the Electric Power Supply Associations’ members who include Exelon Corp., Entergy Corp., and Southern Company. However there are some utilities and companies that support the regulation, and they have backed the government’s appeal.

For the case, conservative Justice Samuel Alito recused himself and followers of the court currently estimate that the remaining eight justices could be split 4-4. Conservative justices expressed their doubts whether the Obama administration and the federal government has the authority to issue such a regulation. Chief Justice John Roberts, a conservative, said “You have to have some sort of limiting principle, otherwise FERC can do whatever it wants.” His concerns stem from the fact that the regulation gives the federal government too much authority over the electricity markets, which is traditionally overseen by states.

The courts liberal justices however disagree. During questions, Justice Elena Kagan cited the 2005 Energy Policy Act. She said that Congress had made it clear with 2005 act that “it wanted FERC to lower barriers to demand response.” Not passing this regulation would be in effect disabling FERC from achieving this goal. The deciding vote usually comes from Justice Anthony Kennedy whose questions seemed to indicate him favoring a re-crafting of the regulation rather than throwing out the regulation as a whole. An even 4-4 split however would uphold the May 2014 lower court ruling.


Brought to you by the EarlyBird Power Market Research Team