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Unchecked Authority: Supreme Court Says FERC Payment Of Full LMP To Demand Response OK Because Of Harmony With FERC's Statutory Charge Of "Holding Down Prices And Enhancing Reliability"
In a decision declaring a broad interpretation of FERC's authority, the U.S. Supreme Court overturned a lower court and ruled that FERC's Order 745, which requires full payment of LMP to demand response, is consistent with FERC's jurisdiction under the Federal Power Act.
While the court found the demand response compensation directly affects wholesale rates (which could have settled the issue and made the following conclusion moot), more dangerous is the Court's broader reasoning that Order 745 is within FERC's authority because the actions taken thereunder are in harmony with FERC's "core purposes" of curbing prices and enhancing reliability in the wholesale electricity market
The Court reached this conclusion, in a 6-2 decision, based on the following reasoning:
• The at-issue payments for demand response commitments "directly affect" wholesale rates.
• In addressing those practices, the Commission has not regulated retail sales.
• A contrary view, "would conflict with the [Federal Power] Act’s core purposes by preventing all use of a tool that no one (not even EPSA) disputes will curb prices and enhance reliability in the wholesale electricity market."
More specifically, the Court said that the FPA aims to protect, "against excessive prices" and ensure effective transmission of electric power.
"FERC has amply explained how wholesale demand response helps to achieve those ends, by bringing down costs and preventing service interruptions in peak periods," the Court said
"We will not read the FPA, against its clear terms, to halt a practice that so evidently enables the Commission to fulfill its statutory duties of holding down prices and enhancing reliability in the wholesale energy market," the Court said
Justice Antonin Scalia in a dissent, joined by Justice Clarence Thomas, said that the majority improperly concludes that FERC has jurisdiction over demand response compensation, arguing that if the sale at issue is not wholesale, than the FPA does not grant FERC authority over the sale.
"[T]he majority frames the issue thusly: '[T]o uphold the [r]ule, we also must determine that it does not regulate retail electricity sales.' That formulation inverts the proper inquiry. The pertinent question under the Act is whether the rule regulates sales 'at wholesale.' If so, it falls within FERC’s regulatory authority. If not, the rule is unauthorized whether or not it happens to regulate 'retail electricity sales'; for, with exceptions not material here, the FPA prohibits FERC from regulating 'any other sale of electric energy' that is not at wholesale," Scalia wrote
"While the majority would find every sale of electric energy to be within FERC’s authority to regulate unless the transaction is demonstrably a retail sale, the statute actually excludes from FERC’s jurisdiction all sales of electric energy except those that are demonstrably sales at wholesale," Scalia wrote
Scalia notes that the FPA defines wholesale as, "a sale of electric energy to any person for resale," and that no such resale occurs in the at-issue demand response. "It is therefore quite beside the point that the challenged '[r]ule addresses -- and addresses only --transactions occurring on the wholesale market'. For FERC’s regulatory authority over electric-energy sales depends not on which 'market' the "transactions occu[r] on' (whatever that means), but rather on the identity of the putative purchaser. If the purchaser is one who resells electric energy to other customers, the transaction is one 'at wholesale' and thus within FERC’s authority. If not, then not," Scalia wrote
Justice Samuel Alito took no part in the consideration or decision of the case.
Case 14-840, FERC v. Electric Power Supply Association
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January 26, 2016
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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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