U.S. Top Court Upholds Electricity Markets Rule

 

The court ruled 6-2, with Justice Samuel Alito not taking part in the case, to reverse a May 2014 decision by the U.S. Court of Appeals for the District of Columbia Circuit to strike down the 2011 Federal Energy Regulatory Commission regulation.

 

The regulation concerns what FERC calls "demand response," which is when, in an attempt to manage demand for electricity, regional electrical grid operators agree to pay big electricity users like factories, businesses, schools and hospitals to cut consumption at peak times. It is aimed at improving grid reliability, lowering costs and encouraging clean energy.

 

"Demand response" can reduce costs for consumers and lower the possibility of system failures and power blackouts.

 

The case pitted the government's energy regulator against power companies opposed a regulation that threatened to cut into their profits. FERC exercises authority over wholesale electricity markets, with retail markets traditionally overseen by states. The challengers said the agency had exceeded its authority by extending its power over the retail markets.

 

That argument was rejected by the court, with liberal Justice Elena Kagan, writing for the majority, saying that FERC's focus was on the wholesale market and the impact on retail rates did not take away its authority to act.

 

"The commission's rule addresses - and addresses only - transactions occurring on the wholesale market," Kagan wrote.

 

Kagan said that "whatever the effects at the retail level, every aspect of the regulatory plan happens exclusively on the wholesale market and governs exclusively that market's rules."

 

The court also upheld the formula the government adopted for compensating electricity users that receive the payments.

 

Justices Antonin Scalia and Clarence Thomas, both conservatives, were the two dissenters. Scalia wrote that in his view FERC was barred from issuing the rule.

 

The Electric Power Supply Association, PPL Corp and other trade groups that challenged the regulation would lose out under the regulation because it was likely to reduce demand for electricity generation.

 

The Electric Power Supply Association's members include Exelon Corp and Dynegy Inc. (DYN) Utility group Edison Electric Institute, which represents such companies as Entergy Corp and Southern Company, also challenged the rule.

 

The rule had remained in effect while the case made its way to the Supreme Court, which heard oral arguments on Oct. 14.