SCOTUS’s Demand Response Ruling in 3 Quotes

On Monday, the U.S. Supreme Court issued a major decision, ruling that the Federal Energy Regulatory Commission’s (FERC) has the authority to regulate demand response.

Demand response – which allows end-use consumers to save money by reducing their electricity use at times of peak demand – was at the heart of Federal Energy Regulatory Commission vs. Electric Power Supply Association. In the case, the Court ruled on two separate demand response issues: first, and more broadly, whether FERC has jurisdiction over demand response in interstate wholesale markets; and, second, and more narrowly, whether FERC has authority over what markets pay for demand response resources.

In both instances, the Court struck down a lower court opinion in a 6-2 decision, siding with FERC and delivering a clear win for both the commission and demand response providers. To help unpack the ruling’s meaning and significance, we’ve compiled three key quotes:  

“The FPA has delegated to FERC the authority — and, indeed, the duty — to ensure that rules or practices “affecting” wholesale rates are just and
reasonable.” - Justice Elena Kagan 

In 2012, FERC issued Order 745 requiring grid operators to pay the full market price – or the locational marginal price (LMP) – to economic demand response resources in real-time and day-ahead markets, granted they are cost-effective. In 2014, however, the U.S. Court of Appeals for the District of Columbia Circuit ruled against Order 745, ruling that the commission had overstepped its legal authority and was encroaching on the states' exclusive right to regulate retail electricity markets.

In the opinion of the Court penned by Justice Elena Kagan, the Court decided that demand response falls within FERC’s authority under the Federal Power Act (FPA). The Court conceded that the approach does impact retail electricity prices, but concluded that the policy is directly aimed at affecting wholesale rates and ensuring grid reliability. 

“Our decisions uniformly speak about rates, for electricity and all else, in only their most prosaic, garden-variety sense. The commission, not this or any other court, regulates electricity rates.” - Justice Elena Kagan

The Court also addressed the narrower question of whether FERC has authority to determine what markets pay for demand response resources and did so in favor of the federal regulator, arguing that the Court does not determine whether an agency made the best regulatory decision.

The majority opinion found that that FERC had done its due diligence in setting the rate for economic demand response and that the compensation in Order 745 of LMP plus G (retail transmission costs) is just and reasonable. 

“It will have a tremendous impact on consumers to control their energy cost and provide a service to the wholesale market. It’s going to make consumers an equal participant in the market in a way they never were before." - Former FERC chairman Jon Wellinghoff

This case can seem rather dense to outsiders, so what's the upshot? 

For starters, it's a huge win for the commission, demand response providers and, most importantly, consumers. The stakes were high: according to GTM Research, a Supreme Court decision to overturn FERC Order 745 would have likely cut demand response growth in half, resulting in $4.4 billion in lost revenue. 

Instead, customers will continue to have increasingly effective options to control energy costs and help ensure grid reliability at times of peak electricity demand. 

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You can read the Court's full decision here. To learn how how Demand Response can benefit your business, please visit our Demand Response page.