The Supreme Court will take up a case Wednesday that the Obama administration hopes will reverse a lower court’s decision on a landmark electricity rule that pays consumers to use less energy.
The regulation was created by the nation’s utility regulator, the Federal Energy Regulatory Commission, at the beginning of the decade. The rule, referred to as Order 745, turns the tables on the traditional relationship between generators and consumers of electricity by treating demand the same as supply.
The rule sparked the ire of power generators that argued in federal appeals court that Order 745 destabilizes the wholesale markets. The generators argue that the pricing mechanisms in the large wholesale markets are meant to incentivize power plants, not resources that reduce demand and produce no power.
The rule compensates consumers for curtailing their electricity use when called upon by a regional grid operator during times when the grid is stressed. Smaller resources like individual homes can be aggregated to lower their electricity use collectively, in which case they receive a rebate on their electric bills.
The D.C. Circuit Court of Appeals ruled against the federal commission’s rule based solely on jurisdiction, without engaging the merits of the generators’ arguments. The court said the commission overstepped its authority in implementing the rule, explaining that the federal rule affects rates in the state-regulated markets.
The court warned the commission that it could not “simply talk around the arguments raised before it.” It says “reasoned decisionmaking requires more: a ‘direct response,’ which FERC failed to provide here. Thus, if FERC thinks its jurisdictional struggles are its only concern with Order 745, it is mistaken. We would still vacate the rule if we engaged the petitioners’ substantive arguments.”
A number of states are supporting the commission, as well as a number of environmental groups that say Order 745 is crucial for integrating large amounts of solar and wind into the nation’s energy supply to meet the goals of the president’s Clean Power Plan and climate change agenda.
“Demand response resources displace uneconomic fossil-fueled power, and are a key component to the integration of wind and solar power,” said Allison Clements with the Natural Resources Defense Council. “The [appeals court] decision not only muddied the waters on whether and how demand response can participate in wholesale markets, it also raised questions about the participation of other clean energy resources like energy efficiency.”
The power generators believe they will prevail, saying the law is clear on jurisdiction, which the commission clearly violated.
Justice Samuel Alito has recused himself from the case, which observers say is likely due to a conflict of interest involving his investments.
