The Supreme Court of the United States handed down a victory for clean energy in January, 2016. The Supreme Court ruled in favor of the Federal Energy Regulatory Commission (FERC) in Federal Energy Regulatory Commission v. Electric Power Supply Association. The issue in the case was whether FERC has the authority to regulate the rules used by operators of wholesale-electricity markets to pay for reductions in electricity consumption and to recoup those payments through adjustments to wholesale rates under the Federal Power Act (FPA). To put it more plainly, FERC wants wholesale market operators to compensate electricity users, or demand response providers, at the same rate as they would electricity generators. They will compensate users for their commitment to reduce their electricity during peak periods, which is within FERC’s authority under the FPA. However, this would have an effect on retail electricity sales. FERC has the ability to regulate practices that affect wholesale electricity rates. FERC has a duty to ensure that these rates are just and reasonable. However, FERC is limited under the FPA to only create rules or practices that directly affect the wholesale electricity market.

FERC cannot take an action that would regulate retail electricity sales. Under the FPA, the authority to regulate retail electricity sales is reserved for the States. The holding the Court delivered confirmed that the FPA provides FERC with the authority to regulate wholesale market operations compensation of demand response bids. The Court concluded that FERC can regulate the wholesale electricity market even if FERC’s wholesale regulation will have an effect on the retail electricity market. The purpose of the FPA allowing both federal and state powers to oversee and regulate the electricity markets is to prevent any gaps which would allow private interests to interfere with the public welfare.

Finally, the Court held that FERC did not act “arbitrarily or capriciously” in requiring wholesale electricity market operators to compensate electricity users at the same rate as electricity generators. Also, the Court noted that it affords great deference to FERC when reviewing FERC’s electricity rate decisions. This may become an upcoming issue as there may be future challenges to the rates that are imposed.

Sources:

F.E.R.C. v. Elec. Power Supply Ass’n, 136 U.S. 760 (2016).