The Supreme Court today affirmed FERC’s Order No. 745, which required that demand response resources be treated the same as generation resources when participating in wholesale electricity markets. I’m feeling vindicated, because the post-oral argument prognosticators said that it looked bad for FERC, but I always thought that FERC had the stronger argument.
As I noted after the D.C. Circuit struck down Order No. 745, good policy was clear here; the law simply had to catch up to good policy. This was actually an implicit theme of Justice Kagan’s remarkably lucid and readable majority opinion. As she noted repeatedly, pretty much everyone thinks that demand response can play an important role in making energy markets more efficient, lowering prices (and improving environmental outcomes by reducing emissions).
No one taking part in the rulemaking process—not even EPSA—seriously challenged that account. Even as he objected to FERC’s compensation formula, Commissioner Moeller noted the unanimity of opinion as to demand response’s value: “[N]owhere did I review any comment or hear any testimony that questioned the benefit of having demand response resources participate in the organized wholesale energy markets. On this point, there is no debate.”
I’m sorry to sound naïve, but if everyone agrees about the “benefit of having demand response resources participate in the organized wholesale energy markets”, then isn’t it the role of the law to facilitate that policy? In this context, I note that Chief Justice Roberts joined the majority opinion, and I wonder whether, for him, this case is like King v. Burwell, in which he upheld key provisions of the Affordable Care Act, basically on the ground that it just plain doesn’t make sense to interpret a statute in a way that everyone agrees undermines the statute’s objectives.
The same is certainly true here. In the Energy Policy Act of 2005, Congress:
declared as “the policy of the United States” that such demand response “shall be encouraged.”
In the same vein, Justice Kagan noted that states cannot regulate demand response bids:
A State could not oversee offers, made in a wholesale market operator’s auction, that help to set wholesale prices. Any effort of that kind would be preempted.
So we have a situation in which everyone agrees that demand response helps the efficient functioning of wholesale electricity markets. Congress has stated that encouraging demand response is federal policy. And, if FERC cannot regulate demand response, then no one can.
Perhaps Justice Roberts came to the conclusion that, on these facts, it just plain wouldn’t make sense to restrict FERC’s authority. Kagan and Roberts, striking a blow for common sense.