Supreme Court justices today probed whether federal regulators overstepped legal limits with a rule incentivizing energy conservation.
At issue is the scope of the Federal Energy Regulatory Commission’s power in a case on a demand-response rule that required that power users be paid for committing to scale back electricity use at times of peak demand.
A lower court threw out the rule last year, agreeing with power generators and other challengers that FERC — charged with regulating wholesale electricity sales — had overstepped its authority by wading into the retail electricity market. Retail power sales to businesses and residential customers legally fall under states’ jurisdiction.
Justice Anthony Kennedy said it’s clear that the wholesale and retail markets affect each other but questioned where to draw the regulatory line. "The statute makes a distinction," he said. "We have to make a distinction."
Chief Justice John Roberts suggested too that a boundary is needed to prevent FERC from broadly expanding its regulatory reach.
"What is the limiting principle that you would suggest?" he asked.
Solicitor General Donald Verrilli, representing FERC, said he was comfortable with the court drawing a line but argued that in this case, the agency was acting well within its authority. All the conduct FERC is regulating "occurs in the wholesale market," he told the court.
Grid operators and power providers — represented by the Electric Power Supply Association (EPSA), American Public Power Association and others — led the charge to upend the rule, telling the courts that it sets an unfair compensation scheme and is illegal because it’s beyond FERC’s jurisdiction.
Justice Antonin Scalia questioned why FERC has the ability to allow states to opt out of the rule if they choose to do so. He asked whether that wasn’t an acknowledgement that FERC was "mucking around" in states’ business.
Paul Clement, an attorney representing FERC’s challengers today, argued that FERC’s order was "impermissibly" on the retail side of the line.
FERC’s challengers had written in a brief to the court that the agency "cannot expand its own jurisdiction at the expense of the states’ exclusive jurisdiction by asserting a need to regulate a ‘direct effect’ on wholesale rates that FERC has created by inviting retail customers into the wholesale market."
Verrilli argued there is no text explicitly barring FERC from issuing the rule and that the justices should therefore defer to the agency’s authority.
At least one justice appeared to agree with that argument, noting he and his colleagues on the court are not electricity regulators.
"Is what they’re doing here unreasonable?" Justice Stephen Breyer asked.
The case has sparked the interest of a broad range of parties across the energy and environmental realm who have weighed in with briefs to the high court (Greenwire, Oct. 12).
Adoption of FERC’s Order 745 was controversial at the time of its adoption.
Republican Commissioner Philip Moeller at the time issued dissent, in which he argued that organized markets should continue to develop their own rules regarding demand-response compensation. He also expressed concern the rule would grant preferential treatment for demand resources in some cases and discriminate in other cases.
Tony Clark, another Republican FERC commissioner, has also said the rule erred in requiring demand-response providers to be compensated in the energy markets at the same rate as an electric supply offer (Greenwire, June 12).
Clark and FERC Chairman Norman Bay were among those present for the arguments today.
Today’s arguments were heard by eight justices; Justice Samuel Alito was recused from the case.
A decision in the consolidated cases — FERC v. Electric Power Supply Association and EnerNOC v. Electric Power Supply Association — is due by the end of June.
Reporter Hannah Northey contributed.
