The Fate Of Demand Response Hangs In The Balance

The Justices of the United States Supreme Court are not strangers to the retail versus wholesale distinction that often plagues FERC's regulations. Indeed, on January 12, 2015 they heard arguments in Oneok v. Learjet regarding this very question. Three days later, on January 15, 2015, the Solicitor General, on behalf of FERC, filed a petition for a writ of certiorari in FERC v. EPSA regarding FERC's jurisdiction to regulate ISO/RTO demand response programs. Will the Justices take FERC up on its request to argue the wholesale versus retail distinction in the context of demand response? As the Magic 8 Ball® counsels "reply hazy, try again."

Recall, on May 23, 2014, the D.C. Circuit vacated FERC's Order No. 745 regarding demand response. The D.C. Circuit did not defer to the agency's determination and held that FERC acted beyond its jurisdictional authority in issuing Order No. 745 because it infringed on the exclusive jurisdiction of the states to regulate the retail electricity market and was arbitrarily and capriciously implemented without a response to the dissenting comments that Order No. 745 would result in unjust and discriminatory rates. FERC sought en banc review of the D.C. Circuit decision, but was denied.1

The validity of FERC's demand response program has wide ranging implications for the ISOs/RTOs, many of whom are faced with questions from participants. FirstEnergy Service Company was among the first to step forward seeking clarification, filing a complaint with FERC requesting that PJM amend its tariff to remove its demand response provisions, among other things. The New England Power Generators Association followed suit soon afterward, requesting FERC to exclude demand response resources from ISO-NE's February 2015 forward capacity auction and tariff provisions. In sum, market participants have exercised various avenues to pursue much needed clarification going forward.

Petition for Certiorari

In arguing that the Court should grant certiorari, the Solicitor General contends that this case is easily resolved through the application of step one in the Chevron framework, meaning the statutory language is unambiguous: "the Rule applies only to demand-response providers who directly participate in wholesale markets by seeking payments from wholesale-market operators that are recouped by adjusting the wholesale rate."2 Not only does the Solicitor General allege that the D.C. Circuit misapplied principles of agency deference, they...