United States: Supreme Court: FERC Can Regulate Programs Directly Impacting The Wholesale Power Market

Stephen J. Humes is a Partner and Tiana Stephens an Associate in our New York office.


  • In a 6-2 decision on Jan. 25, 2016, the Supreme Court held that the Federal Energy Regulatory Commission (FERC) has the authority under the Federal Power Act (FPA) to authorize demand response resources to participate in organized wholesale energy markets just like power plants, and that FERC properly decided that such demand response resources should be paid the same locational marginal price as energy from power plants.
  • FERC's authority to regulate demand response extends to such resources that "directly affect" the wholesale power market, but states retain authority over retail sales transactions.
  • Although this decision involves competitive energy markets, two pending cases challenging similar rules in competitive capacity markets are now at risk. Furthermore, this decision could impact other Federal Power Act challenges seeking to compensate demand or distributed generation "negawatts" at the same rate as "megawatts" supplied by power generators.

In FERC v. Electric Power Supply Association et al., the U.S. Supreme Court held in a 6-2 decision that the Federal Energy Regulatory Commission (FERC) has the authority, pursuant to the Federal Power Act (FPA), to regulate demand response programs directly affecting the wholesale power market.1 Under Section 205 of the FPA, FERC is tasked with ensuring that all rates and charges for or "in connection with" the transmission or sale for resale of electric energy in interstate commerce – and all rules and regulations "affecting or pertaining to" such rates or charges – are just and reasonable. FERC therefore has jurisdiction over demand response in organized wholesale energy markets because such resources directly affect wholesale rates.2

FERC Shows that Wholesale Demand Response Holds Down Prices and Enhances Reliability

The Supreme Court reinstated FERC Order No. 745 that mandates compensation for demand response projects in competitive wholesale markets and observed that FERC had "amply explained how wholesale demand response" helps to achieve the FPA's core objectives – to protect "against excessive prices" and ensure "effective transmission of electric power." The Court said it would not "read the FPA, against its clear terms" and overhaul demand response when it so clearly permits FERC "to fulfill its statutory duties of holding down prices and enhancing reliability in the wholesale energy market." The Court noted that no party to the case argued that FERC's compensation rules for demand response went against either purpose of the FPA, but instead parties argued that FERC had overstepped its jurisdiction and was impinging on states' rights to regulate retail power prices. Justice Elena Kagan, writing for the majority, wrote that "although (inevitably) influencing the retail market too, [Order No. 745] does not intrude on the States' power to regulate retail sales," adding that "in choosing a compensation formula, the Commission met its duty of reasoned judgment. FERC took full account of the alternative policies proposed, and adequately supported and explained its decision."

This case is the second of three cases before the Supreme Court within a year that challenges the balance of federal power versus states' rights in national energy policy and pricing. In Oneok, Inc. v. Learjet, Inc. et al, 135 S. Ct. 1591 (2015), the Court held that the Natural Gas Act did not preempt a state antitrust investigation of sales of natural gas but nonetheless observed that "Congress occupied the field of matters relating to wholesale sales and transportation of natural gas in interstate commerce." Both Electric Power Supply Assn. and Hughes v. Talen Energy Marketing3 (oral argument scheduled for Feb. 24, 2016) deal with pricing under the FPA. The issue in Talen Energy is whether the FPA preempts states from offering guaranteed contract prices to build wholesale power plants in organized competitive wholesale power markets. Both the Fourth Circuit and the Third Circuit decided that states' procurement contracts were preempted by the FPA and therefore invalid. The Talen Energy cases are essentially the inverse of Electric Power Supply Assn. – examining states' power to regulate in a field reserved exclusively for FERC under the FPA compared to FERC's power to regulate in a domain reserved for the states. Whatever the outcome, this is the first time in decades that the Court has dealt with two FPA cases and a Natural Gas Act case within a year.

The Court's View of an Agency's Authority to Influence Energy Policy and Implementation

While environmental groups have been quoted in the media as welcoming Electric Power Supply Assn. as a possible harbinger of future results in challenges to the U.S. Environmental Protection Agency's (EPA) Clean Power Plan, the Court grounded its decision squarely within the FPA's statutory dual purposes: to ensure the reasonableness of wholesale prices and to enhance the reliability of the power grid. The Court wrote that demand response arose "because wholesale market operators can sometimes – say, on a muggy August day – offer electricity both more cheaply and more reliably by paying users to dial down their consumption than by paying power plants to ramp up their production."

It remains unclear whether the Court will reach similar conclusions when challenges to President Obama's Clean Power Plan arrives at the Supreme Court.4 Although both the Electric Power Supply Assn. and challenges to the Clean Power Plan involve arguments that federal agencies usurped states' rights, and therefore involve federalism versus states' rights in addressing problems of national significance, each agency's authority and controlling statutes are different and the outcomes of future cases remain uncertain. Here, the Court gave a federal agency room to apply its statutory authority and mandate to develop an effective, cost-minimizing solution to complex national problems – enhancing electric reliability while reducing energy costs. A similar outcome could happen with the EPA's expansive reading of the Clean Air Act.

At a time in which electric utilities and state regulators are increasingly questioning the prudency of allowing on-site owners/operators to install net metered renewable energy facilities such as solar photovoltaics and wind turbines – in exchange for retail credits at retail rates at the expense of other customers – the decision suggests the Court would have trouble reversing FERC in future renewable cases that directly affect wholesale rates. As the Court observed, "The Commission, not this or any other court, regulates electricity rates. The disputed question here involves both technical understanding and policy judgment. ... It is not our job to render that judgment, on which reasonable minds may differ."


1 ___ S. Ct.___, No. 14-840, Federal Energy Regulatory Commission v. Electric Power Supply Association et al. (U.S. Jan. 25, 2016), consolidated with No. 14-181, EnerNOC, Inc., et al. v. Electric Power Supply Association et al. Justice Alito took no part in the consideration or decision of the cases.

2 See FERC Docket No. RM10-17-000; Order No. 745, Demand Response Compensation in Organized Wholesale Energy Markets, ¶ 112 (FERC Mar. 15, 2011).

3 Consolidated with CPV Maryland, LLC v. Talen Energy Marketing.

4 Just this week, 25 states and several energy companies petitioned Chief Justice John Roberts to issue a stay of the Clean Power Plan while appeals are considered at the D.C. Circuit Court of Appeals. State of West Virginia, et al v. U.S. EPA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.