The Supreme Court will hear oral arguments Wednesday over a federal rule requiring that electricity providers give financial incentives to customers who slash power use in times of high energy demand.
The fight over the Federal Energy Regulatory Commission's demand-response rule will likely be the year's most important energy case.
"The stakes are really, really high," said David Goldberg, an attorney representing environmental groups that back the rule. "It's part and parcel to very important changes that have happened in energy regulation and energy provision, and is very, very important to the future of our nation's energy supply because this is a dynamic, flexible method."
At issue is a 2011 FERC regulation, Order No. 745, which requires grid operators to compensate electricity users for conserving power at peak times. Demand-response customers get paid the same rate for conservation as utilities get for selling electricity.
Grid operators and power providers -- represented by the Electric Power Supply Association (EPSA), American Public Power Association and others -- have told the courts that the rule sets an unfair compensation scheme and is illegal because it's beyond FERC's jurisdiction.
They contend that FERC's order effectively regulates retail electricity sales to businesses and residential customers that legally fall under states' jurisdiction. FERC, meanwhile, has authority over wholesale electricity sales -- when operators purchase electricity from power providers for resale to consumers.
"FERC's claim that it has authority to regulate reduced retail demand because it has invited 'demand response providers' into the wholesale markets merely describes FERC's power grab without justifying it," attorneys representing EPSA told the Supreme Court.
The U.S. Court of Appeals for the District of Columbia Circuit agreed with those challenging the rule, and tossed it out in a split decision last year (Greenwire, May 23, 2014).
Judge Janice Rogers Brown, writing for the majority, disputed FERC's contention that retail markets affect wholesale rates and that, therefore, the commission has jurisdiction.
Under that premise, she wrote, FERC's authority would be "almost limitless."
"Without boundaries, [FERC's interpretation] could ostensibly authorize FERC to regulate any number of areas, including the steel, fuel, and labor markets," she wrote.
FERC, meanwhile, argues the rule is legal. "Demand-response payments by wholesale-market operators expressly fall within FERC's" authority affecting wholesale rates, Solicitor General Donald Verrilli said in a brief to the Supreme Court.
"Those payments are made by wholesale-market operators in wholesale markets for the purpose of balancing wholesale supply and demand, setting wholesale prices at optimal levels, and enhancing the reliability of the interstate grid," he added.
Reporter Jeremy Jacobs contributed.