Last week, the Supreme Court handed down a ruling affirming that federal regulators may encourage large electricity users to reduce consumption at peak times in exchange for price breaks, a practice known as "demand response." The 6-2 ruling overturned a federal appeals panel ruling issued last year, and was hailed by environmentalists as a major victory. Demand response promotes electricity conservation and has been heavily supported by the Obama administration. For more on the ruling and what it means for the energy industry, read on.
The case, Federal Energy Regulatory Commission v. Electric Power Supply Association, largely revolved around the limits of the Federal Energy Regulatory Commission’s (FERC) authority. The Federal Power Act explicitly gives FERC the power to regulate wholesale transactions, but retail transactions have traditionally been regulated by the states. Utility and power suppliers argued that FERC’s demand response activities effectively regulated retail electricity markets, overstepping its authority to regulate wholesale markets alone. The six justices of the majority, however, rejected that argument. Justice Elena Kagan wrote for the majority, finding that the impact of the demand response regulation on retail markets was incidental to FERC’s demand response activities targeting the wholesale market.
Proponents of demand response argue that the practice lowers costs for consumers, lessens the risk of system failures, and reduces the need for generators to utilize older, dirtier power plants during peak usage times. On the other hand, providers across the Northeast and parts of the Midwest see demand response as a burden, cutting into profits by lowering demand for electricity. The Court’s ruling definitively came down in support of the former, embracing demand response as logical and useful tool well in line with FERC’s regulatory mandate, calling it "a practice that so evidently enables FERC to fulfill its statutory duties of holding down prices and enhancing reliability in the wholesale energy market."
The ruling is a boon for providers of energy conservation services. Boston-based EnerNOC, which helps industrial energy consumers curtail electricity use in return for payments from grid operators, applauded the ruling and hailed it as a tremendous win for all energy consumers, the economy, and the environment. As David Brewster, president and co-founder of EnerNoc noted in a phone call, the FERC case "has been an overhang for the industry of demand response for a number of years, so to have a final resolution at the highest court in the land is a huge victory."