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Wisconsin appeals court tosses regulation barring consumers’ bids in wholesale energy markets

Clean-energy advocates claimed the rule unlawfully blocked financing for solar power, but the appeals court invalidated it due to how it was imposed.

MADISON, Wis. (CN) — A Wisconsin regulation barring consumers from bidding for payments to reduce their consumption of energy from state public utilities was struck down by the state court of appeals on Friday.

The Midwest Renewable Energy Association, a clean-energy group based in Custer, Wisconsin, sued the Public Service Commission of Wisconsin in 2021 over a rule the utilities regulator imposed in 2009. The rule prohibited retail customers of Wisconsin’s four largest electric utilities from going directly to federal wholesale electricity markets to get paid to curtail their use of power during times of peak demand, a practice known as “demand response.”

The group claimed the rule exceeded the regulator’s authority over consumers’ private energy consumption choices by unlawfully disincentivizing the financing of clean energy sources like solar power and failing to get the rule approved by the Wisconsin Legislature under state law guiding administrative rulemaking procedures.

Writing Friday’s decision on behalf of a three-judge panel of the Wisconsin Court of Appeals district based in Madison, Judge Chris Taylor made no mention of the group’s first argument, but she declared the rule invalid based on the second one, finding the rule should have not been issued by the regulator unilaterally.

Taylor’s decision reversed a Portage County Circuit Court judge’s decision dismissing all of the clean-energy group’s claims and sent the case back to the lower court for a declaration that the disputed rule is invalid.

Interstate wholesale electricity sales are managed at the federal level by the Federal Energy Regulatory Commission, which oversees regional nonprofits — in this case the Midcontinent Independent System Operator — that set wholesale prices and facilitate sales of electricity from energy producers to local utilities, which then sells the juice to retail customers.

During times of peak energy demand that can stress and sometimes overload electricity grids, federal regulators and the nonprofits encourage “demand response,” in which customers or third-party aggregators of many customers can essentially bid in wholesale markets for payments to decrease their energy consumption — unless state-level regulators say they cannot.

That’s what happened in 2009 when the Public Service Commission of Wisconsin issued its order that temporarily prohibited participation in demand response activities by consumers of the state’s largest utilities. 

Taylor noted in Friday’s opinion that “there is no dispute that, in issuing the order, the commission did not comply with the pertinent rulemaking procedures,” outlined in statutes, making the rule unenforceable.

Interpreting the order like a statute and applying a five-prong test laid out by case law, Taylor in part concluded that the rule qualifies as a “regulation” because it “controls the conduct of retail customers and [third-party aggregators] through the restriction of disallowing their participation in demand response in federal wholesale markets.”

The order satisfies another element of the test to determine an administrative rule because it is of “general application,” meaning it applies to a general, unfixed class of individuals that could include more people in the future but does not necessarily include everyone, Taylor said.

The unpromulgated rule is of general application because it “regulates a class comprising existing and future retail customers of four large electric utilities in Wisconsin and existing and future [third-party aggregators] by explicitly prohibiting these individuals and entities from participating in demand response activities” in the regional nonprofit’s markets, the judge said.

Earthjustice, the environmental law firm representing the plaintiffs, applauded Taylor's decision as a win for both Wisconsin energy consumers and the climate at large by opening up aggregated demanded response, thereby reducing consumers' monthly bills and displacing the need for additional electricity generated by burning fossil fuels.

"Aggregated demand response is essentially a new clean energy resource, which will speed the transition to clean energy across the state," said Raghu Murthy, Earthjustice's deputy managing attorney. "Earthjustice is fighting these prohibitions in a number of states so that everyone can benefit from demand response programs."

The Public Service Commission of Wisconsin did not respond to a request for comment.

Taylor is a former state Democratic lawmaker who in 2020 was appointed to the Dane County Circuit Court bench by Governor Tony Evers, also a Democrat. She ran unopposed and won election to a six-year term as an appellate court judge last year. Appellate Judges Brian Blanchard and JoAnne Kloppenberg joined Taylor in Friday’s decision.

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Categories / Appeals, Consumers, Energy, Regional

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