The Supreme Court announced Monday that it will review whether a federal agency may require electric market operators to compensate customers who lower their consumption of electricity during peak demand hours.
The court said it would determine whether the Federal Energy Regulatory Commission (FERC) exceeded its statutory authority when in 2011 it adopted the approach, which is called “demand response.”
Environmentalists, the Obama administration and some large consumers say demand response is a key mechanism for getting people to use less energy overall and, therefore, producing fewer emissions of carbon dioxide or other harmful pollutants.
Total electricity demand varies greatly, and when it peaks — usually in the afternoon or evening each day, but also seasonally, such as on very hot days — power companies have to bring additional power plants online to service that peak load.
In doing so, the companies address the need for more electricity by adding more supply. But demand response also can reduce how much power people or companies use during these peak times.
FERC’s rule would have ensured that companies or individuals get compensated for voluntarily reducing their power usage at peak demand. “A market functions effectively only when both supply and demand can meaningfully participate,” FERC noted in promulgating the rule.
The agency also said in its brief to the Supreme Court, “Demand response, by decreasing the amount of power necessary to balance supply and demand, reduces the risk of system failures like blackouts and curbs the market power of generators.”
Electricity generators say that FERC’s proposed compensation is too generous and, more importantly, is a power grab that exceeds the authority Congress has given it.
“The Federal Power Act draws a ‘bright line’ distinction between state and federal jurisdiction over the regulation of sales of electric power,” said a brief filed by the Electric Power Supply Association, of which NRG Energy and Exelon Corp. are members.
Wholesale sales of electricity are subject to FERC’s jurisdiction, the association asserts, while retail sales are the exclusive province of the states.
A panel of the U.S. Court of Appeals for the District of Columbia Circuit agreed with the electricity producers on a 2-to-1 vote.
“Demand response — simply put — is part of the retail market,” wrote Circuit Judge Janice Rogers Brown. “It involves retail customers, their decision whether to purchase at retail, and the levels of retail electricity consumption.”
The Obama administration, supported by environmentalists and some large consumers, asked the Supreme Court to reconsider.
“To the extent demand response reduces prices, which we believe it does, all consumers benefit,” says Steven Nadel, executive director of the American Council for an Energy-Efficient Economy.
A supporting brief filed by a group of large power consumers, including Alcoa and the University of Maryland at College Park, said that the benefits extend beyond those who take advantage of the program.
“Demand response benefits all end-use consumers by eventually reducing their electricity prices by billions of dollars per year,” the brief said. “It also provides a reliable and effective mechanism for balancing the grid when demand spikes.”
Justice Samuel A. Alito Jr. recused himself from the case, presumably because of a financial conflict. That means the case will be heard by an eight-member court in the term that begins in October, and a tie vote would keep the lower court’s ruling in place.
The combined cases are FERC v. Electric Power Supply Association and EnerNOC v. Electric Power Supply Association.