No news may be good news for FERC in grid case

By Robin Bravender | 01/13/2016 01:16 PM EST

After the Supreme Court heard oral arguments over a major energy conservation rule in October, supporters of the regulation were anxious.

After the Supreme Court heard oral arguments over a major energy conservation rule in October, supporters of the regulation were anxious.

Their fear: A divided court would act swiftly to reject a Federal Energy Regulatory Commission "demand-response" rule requiring power users to be paid for committing to scale back electricity use at times of peak demand.

But the passage of weeks and then months with no decision could be a signal that the justices will do more than simply kill the regulation.


"We’ve been feeling like the longer it takes, the better it is for FERC," said Allison Clements, director of the Natural Resources Defense Council’s Sustainable FERC Project.

Clements is among many environmentalists who support the demand-response rule. Proponents of the 2011 FERC regulation, Order No. 745, say the program stands to bring about billions of dollars in consumer benefits by lowering electricity rates and would help protect the grid against blackouts and brownouts. But a federal appeals court struck down the rule in 2014, ruling that FERC had stepped onto states’ turf by regulating retail electricity sales to businesses and residential customers.

During the October arguments, conservative justices appeared skeptical that the agency had the power to issue the rule. That left some lawyers anticipating a swift announcement of a 4-4 split among the eight justices who heard the case, a move that would uphold the lower court’s rejection. The announcement of a split decision could come in just a few sentences and offer little guidance for the agency (Greenwire, Oct. 14, 2015).

The split is possible because Justice Samuel Alito recused himself from the case, presumably because he has a financial stake in one of the companies involved, although the court didn’t specify the reason.

Now that three months have gone by, lawyers tracking the case think the lag may point to positive news for FERC.

Following the arguments, "it appeared to me that the justices were very divided and it seemed quite possible that we could get a quick decision on jurisdictional issues," said Vanderbilt University law professor Jim Rossi, who co-authored an amicus brief calling on the court to back FERC’s authority.

He insisted that it’s difficult to predict the justices’ moves. "It is," he said, "a little bit like reading tea leaves."

Even if the justices decide FERC does indeed have the authority to issue the demand-response rule, they could still deem that the regulation was "arbitrary and capricious," and therefore illegal.

"It may well be the case that this gives more time for the justices to sift through the policy arguments and to try to better understand the nature of the record, if they’re focusing on the arbitrary and capricious issues in the case," Rossi said. The justices wouldn’t get to that issue unless a majority thought FERC had the authority to adopt the demand-response rule in the first place, he added.

Those are complicated issues that could take the court a while to sort out, Rossi said. "It is fair to say that when you start to lift up the hood and look not only at whether the agency has the authority to do something but whether it gave good reasons for what it did, there’s the potential there that you’re opening up a big can of worms."

For supporters of FERC’s policy, a ruling determining that the demand-response rule was "arbitrary and capricious" but that the agency had authority to issue it would be more welcome than a finding that the agency didn’t have the power to impose the rule at all. If the court finds FERC does have jurisdiction, the agency could tweak the rule to bring it in line with the justices’ ruling.

A decision in the consolidated demand-response cases before the court — FERC v. Electric Power Supply Association and EnerNOC Inc. v. Electric Power Supply Association — is due by the end of June, when the justices wrap up their term.

Waiting for more FERC arguments?

Another possible reason no opinion has been issued yet: The justices are preparing to soon hear arguments in related cases over electricity market jurisdiction.

On Feb. 24, the high court is scheduled to host oral arguments in two linked cases — W. Kevin Hughes v. PPL EnergyPlus LLC and CPV Maryland LLC v. PPL EnergyPlus — involving a Maryland program providing incentives for new power generation. A lower court threw out the state program after judges found the incentives infringed on FERC’s jurisdiction.

Given that both cases concern the boundaries of state and federal authority, some lawyers say arguments in the Maryland cases might help shed some light on the demand-response cases.

"Maybe they’re waiting to hear the other side of that argument before trying to draw a line," said Ari Peskoe, an energy fellow at Harvard Law School’s Environmental Policy Initiative. If the justices were aiming to create sound policy regarding the regulatory divisions, "maybe they want to hear both sides so they can try to craft that correctly."

Clements of NRDC said, "Getting another set of facts in place helps to avoid unintended consequences, which in this case would be a regulatory gap."

Rossi suggested that the two opinions in the FERC cases could be issued simultaneously later this year. "It’s not unheard of for the court to issue two opinions addressing the same statute or the same legal doctrine or constitutional doctrines … on the same day," he said.

Regardless of when the demand-response opinion is issued, it will have major implications for regulated industry.

"Whether the decision comes out tomorrow, next week or a month from now or whenever — it’s obviously going to be very important," said Joseph Hall, a partner at Dorsey & Whitney LLP and co-chairman of the firm’s energy industry group.

"It’s going to be a benchmark from the Supreme Court concerning FERC’s ability to take actions that impact retail sales. … It’s going to start to provide a little more certainty about who regulates what types of transactions."