Energy cases often start shoving matches between Federal and State’s rights groups. Each State’s Department of Public Utilities regulates those markets – except when the Federal Government’s regulations trump the States’.
The Decision
A Federal Appeals Court sided against the Federal Energy Regulatory Commission (FERC) in a May 2014 case, deciding that FERC could not determine the price to be paid when retail electric customers agreed to reduce consumption at specific times.
The Challenged Rule
FERC issued order 745 in 2011 requiring that large electric generators (Regional Transmission Organizations and Independent Service Organizations) compensate power users who agreed to restrict their power consumption at certain times – such as when the grid was near generating capacity. Such ‘demand response’ plans incentivize power usage cutbacks with mandatory set-price payments from the utilities. The incentive payments were in the same amounts as electricity generators were paid (Locational Marginal Price).
Reasons for the Decision
The majority ruled that FERC went beyond its authority in issuing the demand response payment rule because FERC only regulates wholesale electricity markets and the power users who agreed to trim their demand were retail power users – whose conduct and compensation is regulated by States.
A dissenter was, of course, vigorous in calling for a different line to be drawn between the power of the FERC and State Regulators, a line that gave Federal regulators more leeway.
The Upshot
If upheld, the decision could clip the wings of the Federal Energy Regulatory Commission, restricting its rulings to those that strictly impact only wholesale and not retail energy sales. For now, the future of ‘demand response‘ programs offering payments to power users who agree to reduce their energy consumption – is up in the air.