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Supreme Court Upholds FERC’s Order Regulating Demand Response

The U.S. Supreme Court has upheld FERC’s authority to regulate pricing for demand response through wholesale electricity markets, overturning a previous decision by the U.S. Circuit Court of Appeals for the District of Columbia Circuit.

The justices ruled 6-2 in the Federal Energy Regulatory Commission’s favor in an opinion issued Monday in FERC v. Electric Power Supply Association.

The case centered around whether the Federal Energy Regulatory Commission has the authority to implement Order No. 745 under the Federal Power Act (FPA). The order requires that demand response providers -- parties committing to reducing consumption during peak periods -- be compensated at an equivalent rate to the costs for produced power, assuming such an arrangement satisfies a “net benefits test.”

At issue was whether FERC’s order overstepped its authority to oversee interstate wholesale markets by interfering with state regulation of retail markets.

On behalf of the majority, Justice Elena Kagan wrote that “although (inevitably) influencing the retail market too, the Rule does not intrude on the States’ power to regulate retail sales. FERC set the terms of transactions occurring in the organized wholesale markets, so as to ensure the reasonableness of wholesale prices and the reliability of the interstate grid -- just as the FPA contemplates.”

The justices further held that FERC had “met its duty of reasoned judgment” in arriving at the compensation formula in its rule.

Analysts with ClearView Energy Partners LLC said in a note Monday that two other cases challenging FERC’s inclusion of demand response pricing in capacity markets -- one filed by FirstEnergy and another by the New England Power Generator Association -- will likely “be dismissed as moot within months. The premise for those complaints was the Order 745 vacatur [by the D.C. circuit court], which was overturned today,” ClearView said.

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