The Obama administration yesterday said a federal appeals court "seriously misinterpreted" the Federal Energy Regulatory Commission’s jurisdiction when vacating a high-profile demand response rule last year — and that the Supreme Court should review the case.
Solicitor General Donald Verrilli asked the Supreme Court to review a federal appeals court ruling that scrapped FERC’s Order 745, a rule the agency issued in 2011 that ordered demand response providers such as factories or commercial buildings to receive full market prices when they curtail electricity use.
Verrilli and attorneys for FERC are fighting the U.S. Court of Appeals for the District of Columbia Circuit’s decision last May to vacate the commission’s Order 745. The appeals court ruled that demand response falls within states’ jurisdiction — not FERC’s — and that the commission infringed on states’ authority under the Federal Power Act (Greenwire, May 23, 2014).
Verrilli and FERC attorneys told the Supreme Court that the federal appeals court "misapplied basic principles of deference to agency interpretations of statutes" and departed from the "interpretive approach" to the Federal Power Act that courts have applied for a half-century.
FERC was clearly within its authority to issue Order 745, but the appeals court expressed misplaced concern that the order would allow the agency to regulate the retail electricity market and other markets like fuel and steel, the attorneys said.
"That concern was unfounded: The rule regulates the price that wholesale purchasers of power pay — through the wholesale rate established in auction markets run by wholesale market operators — for a reduction in consumption by demand-response providers," they wrote. "The demand-response providers are actual and integral participants in wholesale markets themselves and the effect of their participation on the wholesale rate is far more immediate and direct than the effect exerted by retail consumption generally or the markets in generation inputs."
Verrilli also argued that the Supreme Court should consider the petition because vacating Order 745 could inflict significant harm on the wholesale power markets and scrap a critical method for averting power outages in some parts of the country. PJM Interconnection, which operates the grid in the Midwest and Mid-Atlantic, relied on demand response to thwart reliability problems when subarctic temperatures seized the East Coast last winter, he noted. Vacating the rule throws into question whether FERC can review rules that wholesale market operators establish to govern demand response — or whether the agency has the authority to permit demand response, Verrilli said.
"Indeed, immediately after the court issued its opinion, certain parties submitted complaints to FERC seeking to remove all demand response from wholesale markets," he wrote.
Adding to that point, Verrilli and agency lawyers noted that all FERC commissioners — even Philip Moeller, a Republican member of FERC who has questioned the agency’s approach in crafting Order 745 — agreed that the commission had the right to promulgate the rule and that demand response plays a valuable role in wholesale power markets.
Supreme Court justices typically give petitions submitted by the solicitor general a close review, but the odds of the court taking up the case are low. The Supreme Court receives thousands of petitions every year and grants fewer than 100. The court will likely consider the demand response petition next spring.
Still, former FERC Chairman Jon Wellinghoff expressed hope that the case would move forward.
The Supreme Court has taken up a higher percentage of cases submitted by the federal government compared with private parties, and having the solicitor general submit the case is helpful, Wellinghoff said. The court, he said, should acknowledge that FERC’s order offers states flexibility and that demand response has the potential to save consumers tens of billions of dollars by lowering power prices.
"FERC’s order, one point that’s been missed, it gives states the opportunity to opt out," Wellinghoff said. "It’s not a matter of states’ rights versus the federal government’s rights; it’s really a matter of whether you want to have a robust, just and reasonable wholesale market and allow producers [to] participate."