Fed. Energy Regulatory Comm'n v. Elec. Power Supply Ass'n
Headline: Wholesale electricity demand-response: Court upheld FERC’s rule allowing market operators to pay consumers the same as power plants, enabling more consumer participation and lower wholesale prices while letting states opt out.
Holding:
- Allows operators to pay consumers LMP, increasing demand-response participation.
- Likely reduces peak wholesale electricity prices and eases strain on the grid.
- States can prohibit their retail customers from joining wholesale programs.
Summary
Background
FERC issued a rule requiring regional wholesale market operators to pay consumers or aggregators for promised reductions in electricity use, called demand response, the same price paid to generators in some circumstances. The rule required two conditions: the bidder must be able to deliver the reduction and the bid must pass a "net benefits" test showing it will save wholesale purchasers money. The D.C. Circuit vacated the rule, finding it exceeded FERC's authority and was arbitrary on compensation.
Reasoning
The Court asked whether FERC could regulate these compensation practices without usurping state control over retail sales and whether paying the full wholesale price (LMP) was reasonable. The Court held that demand-response compensation "directly affects" wholesale rates and that the rule governs transactions on the wholesale market, not retail sales. The decision emphasized that the rule applies only when bids help set wholesale prices and that States may bar their retail customers from participating.
Real world impact
The Court found FERC adequately justified paying the full wholesale rate when the net benefits test shows cost savings, noting that equal pay encourages more participation, lowers peak wholesale prices, and improves grid reliability. The ruling reverses the lower court and sends the cases back for further proceedings consistent with this opinion.
Dissents or concurrances
Justice Scalia (joined by Justice Thomas) dissented, arguing FERC lacks authority because the bidders are retail consumers and the rule effectively alters retail prices; he would have left the lower court's decision intact.
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