Supreme Court Hands Demand Response a Big Legal Win in Market Battle with Generators

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Supreme_Court2 (1)The U.S. Supreme Court handed demand response a big legal win today in a landmark battle over making energy savings as valuable in wholesale markets as energy production.

The high court decision removed a lower court ruling that had threatened to stymie use of demand response, a mechanism where energy users are paid to reduce consumption when the grid is under strain.

“Today’s decision is a tremendous win for all energy consumers, for the economy, and for the environment. We commend the court and look forward to continuing to help customers actively participate in our nation’s wholesale markets,” said Tim Healy, chairman and CEO of EnerNOC, a demand response company that was a party to the case.

At issue was Federal Energy Regulatory Commission (FERC) Order 745 that put demand response on the same financial footing as generation in regional wholesale power markets.

The Electric Power Supply Association and a group of generators had challenged the FERC order, contending that the federal agency exceeded its jurisdiction in setting the wholesale payment for demand response. FERC oversees wholesale electricity markets, while states regulate the retail markets.

A lower court backed the generators in May 2014. But in a 6-2 decision, the Supreme Court today overturned the decision. FERC was acting within its authority because demand response is a wholesale market function, said the high court.

“Wholesale demand response is all about reducing wholesale rates; so too the rules and practices that determine how those programs operate,” wrote Justice Elena Kagen in delivering the court’s majority decision. “That is particularly true here, as the formula for compensating demand response necessarily lowers wholesale electricity prices by displacing higher-priced generation bids.”

With profits at stake for both, many in the energy industry have been eager for the Supreme Court ruling.

In giving demand response a significant legal win, the Supreme Court also gave a boost to energy users, according to environmental and consumer groups.  Energy users who participate in demand response receive a payment for reducing their energy use when the grid is under strain. Demand response has largely been the domain of manufacturers and other large energy consumers for several years. But new technologies increasingly open the door for residential customers to participate.

“The Supreme Court’s decision is great news for consumers and the environment. It gives consumers more opportunity to save, and even make, money through smarter electricity use,” said Allison Clements, director of the Sustainable FERC Coalition housed at the Natural Resources Defense Council.

Jill Tauber, managing attorney of clean energy at Earthjustice, said that the decision removes “barriers to this vital clean energy resource in wholesale energy markets” and fulfills FERC’s “responsibility to ensure just and reasonable rates and enhance reliability.”

Follow Energy Efficiency Markets on Twitter @EfficiencyMkts

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Elisa Wood About Elisa Wood

Elisa Wood is the chief editor of MicrogridKnowledge.com and EnergyEfficiencyMarkets.com. She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.

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  1. […] reduce energy use and pays them for doing so – overcame a challenge from power generators with a favorable ruling last month by the U.S. Supreme Court. The decision keeps demand response on equal  footing with […]

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