While our nation’s capital was recently socked in with one of its largest snowstorms in recent memory, the Supreme Court plowed on and announced its decision in the Federal Energy Regulatory Commission v. Electric Power Supply Association (577 U.S. ____(2016); Docket Nos 14-840 and 14-841) in which the Court upheld FERC’s authority to issue its “demand response rule”. In general, the Federal Power Act allows FERC to regulate the sale of electric energy as part of a system of wholesale, interstate commerce including both wholesale electricity rates and any practice that affects such rates. The regulation of any other sale, most notably any retail sale of electricity, remains, in theory, with the states. As the Court noted, though, electricity generation has changed dramatically from the days when a local utility company controlled its own power plants transmission lines, and delivery system to the modern day network of interconnected producers across the country and our modern grids.
This is where the demand response rule comes into play: energy suppliers must generate the amount of power necessary to meet demand from these operators (utilities and load serving entities) that buy wholesale power for purposes of resale to users. To meet spikes in demand these operators must generally accept bids that are more expensive and draw from a greater number of suppliers. Using an increased number of suppliers, however, means using more and more inefficient suppliers and paying more, overall, for the privilege. Wholesale demand response, and the FERC rule that supports it, induces (pays) consumers to reduce their use of power. This in turn curbs wholesale rates, prevents infrastructure breakdowns, and requires less reliance on the least efficient energy producers. Many therefore deem the Supreme Court’s decision a win for consumers and the environment.
But questions remain as to how this will play out moving forward. The analysis by the majority appears to clear a way for increased federal jurisdiction and regulation over matters that indirectly affect retail rates. What was at one time a “bright line” between federal and state authority in this arena has eroded over time, and this decision does nothing to halt that trend. Importantly, this decision comes at a time when advancements in technology offer new and exciting opportunities in renewable energy and localized distribution through initiatives such as micro grids and large-scale energy storage. This evolution in energy production and delivery are part of a new vanguard of state initiatives for the benefit of the retail consumer including New York’s “Reforming the Energy Vision” (REV): a state-level reform program to advance the deployment and use of clean energy to benefit of the environment and the economy. So: just as states have begun pioneering a new vision for energy generation and distribution for the benefit of the environment and retail consumers, the Supreme Court has provided a decision that arguably does the same: but does so by strengthening federal authority that in turn could greatly affect state initiatives and the retail customer. Large power consumers and those interested in developing or using renewable energy or localized delivery infrastructure will need to keep apprised of developments in this arena and seek good counsel to navigate the best path forward.