Supreme Court Upholds Federal Demand Response Electricity Pricing Model

Supreme CourtOn Monday, the Supreme Court ruled that federal regulators can offer price breaks to massive electricity users—like schools, shopping centers, and hospitals—for reducing consumption during peak hours, in order to encourage increased conservancy efforts.  This is a regulatory approach called “demand response,” and it is supposed to lower consumer costs while also improve the infrastructure by reducing system failure risks and blackout frequency.

“That practice arose because wholesale market operators can sometimes — say, on a muggy August day — offer electricity both more cheaply and more reliably by paying users to dial down their consumption than by paying power plants to ramp up their production,” explains Justice Elena Kagan, writing for the majority vote in the 6-to-2 decision.

The fundamental legal question, in this case, was in regards to whether or not the commission had overstepped their authority.  The complication lies in the fact that the commission oversees wholesale transactions via the Federal Power Act, but states actually regulate the distributed retail transactions thereafter.

Justic Kagan adds, “It is a fact of economic life that the wholesale and retail markets in electricity, as in every other known product, are not hermetically sealed.”  She further  explains that wholesale transactions always have a consequence that effects the reatil market too.

Business groups explain that demand response does cut profits for those who own power plants. Business groups then detail that most ignore legal principles which should have restrained the regulator which, in this case, is the Federal Energy Regulatory Commission.

Fortunately, environmental groups have welcomed this ruling.  Sierra Club lawyer Casey Roberts, for example, comments, “Demand response programs make energy cheaper, ensure the reliability of the grid, and protect our air and water from fossil fuel pollution.” in an official statement.

Justice Kagan continues, “The commission’s rule addresses — and addresses only — transactions occurring on the wholesale market. Wholesale market operators administer the entire program, receiving every demand response bid made.”

In addition, general counsel for the Environmental Defense Fund, Vicki Patton notes: “Today’s Supreme Court decision strongly affirms our nation’s bedrock authority to ensure clean, low-cost and reliable energy has full access to the marketplace.”

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