Environmental and Consumer Advocacy Groups ask U.S. Supreme Court to Hear FERC's Case for a Clean Energy Resource

NRDC together with 11 other environmental and consumer advocacy groups today filed a legal brief to the U.S. Supreme Court asking it to hear (and hopefully overturn) a lower court decision invalidating the Federal Energy Regulatory Commission's (FERC) Order 745, an important rule promoting a cleaner, more customer-friendly electric transmission grid.

While the Supreme Court cannot accept every request for review - the applicable standard here is that the case must present an important question of federal law, it is promising that the Obama administration recommended the Solicitor General to petition the high court on FERC's behalf to hear the case.

To further increase the chances for Supreme Court review, our brief explains why the issue presented by the EPSA decision satisfies the Court's standard from the environmental and consumer perspective. The lower court decision, known as Electric Power Supply Association v. FERC (EPSA) eliminates a variety of important benefits of Order 745 for consumers and citizens, and EPSA's broad language has encouraged generators to expand the decision's deleterious effects through additional legal challenges. And of course we point out a number of deficiencies in the EPSA opinion's legal analysis.

The benefits of Order 745: Something for everyone to love - but the generators

Order 745 is an important rule if you like to keep your heat on when the polar vortex attacks, save money on electricity, and promote clean energy. As a win-win-win solution, NRDC and others love to blog on it (see here, here, here, and here).

Order 745 is able to provide these benefits by requiring that demand response - voluntary consumer reduction in energy consumption when the electricity system benefits - be compensated on the same level as traditional electric generation in the regional wholesale energy markets. These consumption reductions typically occur during peak demand when wholesale energy prices are highest and help avoid blackouts or having to turn on the least efficient, most polluting power plants to keep up with demand. Because the customers providing demand response are providing a benefit to the grid, they are compensated for these reductions.

Of course, Order 745 is a pretty sweet deal for most everyone except electric generators, who lose revenues when customers reduce energy use. The generators sued FERC and found sympathy from two out of three judges assigned to EPSA. That majority denied FERC the authority to set compensation levels for demand response in wholesale energy markets because it found that FERC cannot regulate what the two judges considered a part of retail electricity market (which according to them is entirely state-regulated).

Beyond the scope of Order 745: The penumbra of the lower court decision

In addition to the court's decision invalidating Order 745 - a rule concerning only demand response compensation in the wholesale energy markets - the court's use of oversimplified language and loose reasoning has cast a wide shadow of uncertainty over FERC authority in markets and on issues beyond the scope of the case before the court. Some have used this broad language to question FERC's ability to regulate demand response at all - in any of the wholesale markets, and generators have filed complaints asking FERC to eliminate demand response from other FERC-regulated markets, specifically the capacity markets.

Thus, if the Supreme Court declines to hear this case, consumers, citizens, and the environment will no longer get the benefit of Order 745 - and the broad language in EPSA could continue to destabilize demand response in other wholesale markets, further eroding demand response benefits. In the capacity markets, these include benefits from customers committing to curtail energy use years in advance. These commitments lower capacity market prices for consumers, and promote smart planning by reducing excess generation and transmission build-out (because there's no need to increase capacity if you know customers are willing cut back.)

Court deference to expert agencies: Who do you want making decisions about grid rules?

Aside from the deleterious, disruptive, and broad-reaching implications of the EPSA decision, the majority's legal analysis is questionable and inconsistent with the law.

For example, it is widely accepted under what's known as Chevron deference that judicial review of an agency's interpretation of the statute it administers is deferential: if the statute does not directly address the question before the court, the court defers to the agency's interpretation unless it is unreasonable.

This deference is accorded by courts because the agency (FERC) and not generalist judges have the relevant expertise to make highly technical decisions. When the court does not understand the complex, technical landscape in which the agency regulates, it risks making a decision resulting in adverse, far-reaching consequences. In other words, Chevron deference protects us from non-experts making decisions that are detrimental to electric reliability and market stability, among other important things.

Here, the majority in EPSA did not seem to understand the unique benefit of demand response that can be controlled by regional grid operators under FERC authority. One feature of controllable demand response on a regional scale is that grid operators can call on it to preserve regional electric reliability during emergency conditions. For instance, many fossil fuel-burning generators went offline largely due to the extreme cold during last winter's polar vortex, and PJM was able to avoid involuntary reductions in power supply by calling on demand response.

Widespread support for appeal

In addition to our brief, which was jointly filed by NRDC (represented by Earthjustice), Environmental Defense Fund, Sierra Club, and other environmental and consumer advocacy groups, support for the Supreme Court to review this case includes a wide range of stakeholders. State public utility commissions, demand response providers, and industrial consumers all support the appeal. For the foregoing reasons (as we say in legalese), let's hope the Supreme Court hears us.

July 17 update:

Now that the Supreme Court has granted the request to review the D.C. Circuit's decision, NRDC (jointly with other environmental organizations) filed a legal brief with the court explaining why it should rule in favor of FERC's Order 745 and retain demand response in the wholesale energy markets. This brief "on the merits" serves a different function from our February "cert-stage" brief (described above) that focused on why it is important for the Supreme Court to hear this case at all. In both briefs, however, it was important to help the court understand the environmental benefits arising from Order 745 and the public policy support for the order. The Supreme Court will accept another round of briefs (from those challenging Order 745 and replies to those briefs) later this summer before hearing the case in court.

About the Authors

Jennifer Chen

Attorney, Sustainable FERC Project, Energy & Transportation program

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