The Supreme Court decided on Monday to hear a major spat between federal regulators and the utility industry over a regulation that pays consumers to dial back electricity use at times when the grid is stressed.
The Federal Energy Regulatory Commission, which oversees the nation’s power grid, wants the high court to reverse a lower court’s decision from last year that vanquished the regulation in favor of the utility industry.
The commission’s regulation, known as Order 745, compensates large industrial consumers for reducing their electricity consumption at times when demand is overtaxing the system. The payments reduce demand and hence rates for all consumers, even those that are outside the commission’s jurisdiction, which the lower court ruled means the commission is overstepping its authority.
The case is being watched closely by states that have learned to count on the regulation to keep power prices low while maintaining the reliable flow of electricity. Mid-Atlantic states argue that the commission’s policy helped them avoid outages during 2014’s “polar vortex” that saw the grid taxed like never before. If the regulation were not in place to dial back demand, power could have been lost for a large swath of customers, they argue.
The Obama administration and environmentalists are also watching the case. They want the rule upheld because of its importance in reducing emissions. By incentivizing reductions in electricity demand, the regulation helps to reduce the need for new expensive power plants, leading to reduced emissions and lower electric rates, proponents argue. Environmentalists also say the commission’s policy helps ease the integration of more renewables such as solar and wind.
“Today’s Supreme Court action is welcome news in the effort to secure a cleaner, more reliable and affordable electric grid,” said Jill Tauber, attorney with Earthjustice. “At stake in this case is FERC’s ability to remove barriers to this vital clean energy resource in wholesale energy markets and fulfill its responsibility to ensure just and reasonable rates.”
The commission lost the lawsuit on the regulation last year in the D.C. Circuit Court of Appeals. The commission asked the appeals court to rehear the case, but it was denied, forcing the regulator to petition the Supreme Court to reverse the ruling.
In a 2-1 decision that killed the rule, the appeals court judges found that the commission overstepped its authority. The lower court explained that the commission’s regulation affected electric prices in the energy markets that states oversee, which is outside the federal regulator’s jurisdiction. The federal commission cannot impose regulations that affect prices in the state markets, but must keep its rules confined to the wholesale market.
The utility industry says the rule distorts the electric markets that were designed to incentivize power plants, not resources that do not produce electricity. Utilities say the regulation eventually would lead to reliability problems by making it harder for power generators to recoup the cost of projects.
The U.S. solicitor general in a petition sent to the Supreme Court on behalf of the commission says the lower court erred in its assessment. The petition was sent late last year to ask the high court to reverse the decision.
The Supreme Court’s May 4 order says it will address two narrow questions:
“Whether the Court of Appeals erred in holding that the rule issued by the Federal Energy Regulatory Commission is arbitrary and capricious”; and whether the commission “reasonably concluded that it has authority … 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 Monday order said that all justices participated in the order except for Justice Samuel Alito.
The appeals court has stayed its mandate pending the court’s decision in the case.
