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FERC v. Elec. Power Supply Ass'n - 136 S. Ct. 760 (2016)

Rule:

The Federal Power Act, 16 U.S.C.S. § 791a et seq., authorizes the Federal Energy Regulatory Commission (FERC) to regulate the sale of electric energy at wholesale in interstate commerce, including both wholesale electricity rates and any rule or practice affecting such rates. 16 U.S.C.S. §§ 824(b)824e(a). But the law places beyond FERC’s power, and leaves to the States alone, the regulation of any other sale — most notably, any retail sale — of electricity. § 824(b). That statutory division generates a steady flow of jurisdictional disputes because — in point of fact if not of law — the wholesale and retail markets in electricity are inextricably linked. 

Facts:

Spurred on by Congress, The Federal Energy Regulatory Commission (FERC) issued Order No. 719, which, among other things, requires wholesale market operators to receive demand response bids from aggregators of electricity consumers, except when the state regulatory authority overseeing those users' retail purchases bars demand response participation. 18 CFR §35.28(g)(1). Concerned that the order had not gone far enough, FERC then issued the rule under review here, Order No. 745. §35.28(g)(1)(v) (Rule). It requires market operators to pay the same price to demand response providers for conserving energy as to generators for producing it, so long as a “net benefits test,” which ensures that accepted bids actually save consumers money, is met. The Rule rejected an alternative compensation scheme that would have subtracted from LMP the savings consumers receive from not buying electricity in the retail market, a formula known as LMP-G. The Rule also rejected claims that FERC lacked statutory authority to regulate the compensation operators pay for demand response bids.

The Court of Appeals for the District of Columbia Circuit vacated the Rule, holding that FERC lacked authority to issue the order because it directly regulates the retail electricity market, and holding in the alternative that the Rule's compensation scheme is arbitrary and capricious under the Administrative Procedure Act.

Issue:

Did FERC have the authority to regulate wholesale market operators' compensation of demand-response bids?

Answer:

Yes

Conclusion:

FERC had authority to require wholesale electric market operators to pay the same price to demand response providers for conserving energy as to generators for producing it, so long as consumers actually saved money, since the rule directly affected the wholesale rate which was reduced by displacing higher-priced generation bids. Although transactions occurring on the wholesale market affected retail rates, the regulatory plan did not invade the states' authority to regulate retail rates since every aspect of the plan happened exclusively on the wholesale market and governed exclusively the wholesale market's rules. The decision to pay demand response providers at the same price paid to generators was reasonable since FERC engaged in reasoned decisionmaking, weighed competing views, and intelligibly explained the decision.

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