Energy Case Picked Up by Supreme Court

     WASHINGTON (CN) – The Supreme Court agreed Monday to review a federal rule that gives consumers an incentive to reduce their electricity use.
     Electric Power Supply Association and four other industry groups had persuaded the D.C. Circuit that the Federal Energy Regulatory Commission’s new rule went too far, encroaching on the exclusive jurisdiction of states to regulate the retail market.
     The commission issued Order 745 in 2011, establishing uniform compensation levels for suppliers of demand-response resources who participate in the “day-ahead and real-time energy markets.”
     To receive payment of the full “locational marginal price,” or LMP, under the new rule a demand-response resource had to be cost-effective and able to replace a generation resource.
     The commission was divided in adopting the rule, and the federal appeals court vacated it 2-1 as well.
     At issue for the appellate majority was section 201 of the Federal Powers Act, which authorizes the commission to regulate “the sale of electric energy at wholesale in interstate commerce.”
     The commission’s jurisdiction over the sale of electricity has thus “been specifically confined to the wholesale market,” according to the D.C. Circuit’s lead opinion in the case.
     Though the commission noted that the rule only lured the resource to enter the market instead of requiring entry, the appellate majority concluded that “the lure is change of the retail rate.”
     “Demand response – simply put – is part of the retail market,” they wrote. “It involves retail customers, their decision whether to purchase at retail, and the levels of retail electricity consumption. If FERC had directed ISOs [independent system operators] to give a credit to any consumer who reduced its expected use of retail electricity, FERC would be directly regulating the retail rate. At oral argument, the commission conceded crediting would be an impermissible intrusion into the retail market. Ordering an ISO to compensate a consumer for reducing its demand is the same in substance and effect as issuing a credit. Thus, while it is true demand response can occur in two ways – through a response to either price change or incentive payments – nothing about the latter makes it ‘wholesale.’ A buyer is a buyer, but a reduction in consumption cannot be a ‘wholesale sale.’ FERC’s metaphysical distinction between price-responsive demand and incentive-based demand cannot solve its jurisdictional quandary.
     The U.S. Supreme Court granted the commission a writ of certiorari Monday. Per its custom, the court did not issue any comment on the case.
     It noted only that the hearing will probe “whether the Federal Energy Regulatory Commission reasonably concluded that it has authority under the Federal Power Act to regulate the rules used by operators of wholesale electricity markets to pay for reductions in electricity consumption and to recoup those payments through adjustments to wholesale rates.”
     The court will also decide whether the D.C. Circuit “erred in holding that the rule issued by the Federal Energy Regulatory Commission is arbitrary and capricious.”
     Justice Samuel Alito took no part in the consideration or decision of this motion and these petitions.

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