United States: Supreme Court Hears Oral Arguments For FERC's Demand Response Rule

On October 14, 2015, the U.S. Supreme Court heard oral arguments in Electric Power Supply Ass'n v. FERC regarding FERC Order No. 745, "Demand Response Compensation in Organized Wholesale Energy Markets."  Order No. 745 previously had been vacated by the U.S. Court of Appeals for the D.C. Circuit (see May 27, 2014 edition of the WER).  The arguments largely focused on whether, by requiring regional transmission organizations ("RTOs") and independent system operators ("ISOs") to pay demand response resources the full locational marginal price, FERC was regulating conduct in non FERC-jurisdictional retail markets.

During the arguments, Justices John Roberts and Antonin Scalia stated their concern that, under Order No. 745, FERC was directly affecting retail prices.  In response, U.S. Solicitor General Donald Verrilli—arguing for FERC—contended that, although Order No. 745 would ultimately affect retail prices, FERC was regulating conduct that occurs in the wholesale auction in the wholesale market.  Verrilli also argued that Order No. 745's provision of state veto power represented an example of cooperative federalism.  Furthermore, Verrilli argued that FERC deserved deference because no statutory authority clearly limited FERC's authority in the case.  The attorney appearing on behalf of a group of private petitioners supporting Order No. 745 argued that the Court should focus more on how Order No. 745 affects wholesale rates rather than incidental effects on retail rates.

Arguing against FERC, the attorney for the Electric Power Supply Association ("EPSA") and its supporters stated that FERC overstepped its jurisdiction by regulating retail prices directly.  EPSA contested that, if FERC were permitted to exercise jurisdiction over demand response, FERC would have the power to forbid retail customers from buying power at peak demand.  In addition, EPSA argued that retail customers "[do not] belong on the wholesale market. . . .  The fact that [FERC] is regulating in this context and this context alone, retail customers directly, is a profound signal that [they have] overstepped their jurisdictional bounds."

A transcript of the oral arguments is available here.

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