Where is the DC Circuit’s Response to FERC’s Demand Response Rule 745?

by Carolyn Elefant on February 18, 2014

in Appeals

It’s been nearly five months since the DC Circuit heard oral arguments arguments  on the petition for review of  FERC Order 745.  In case you’ve forgotten, Order 745 is FERC’s landmark rule requiring comparable treatment for demand response and generation resources by required RTOs and ISOs to pay the full wholesale price (also known as locational marginal price (LMP)) for demand response resources participating in wholesale markets.  But Order 745 was not without controversy; Commissioner Moeller dissented, arguing that LMP pricing would result in double payment to demand resources and a group of economists even filed an amicus brief at the court, which largely supports Commissioner Moeller’s approach.

For most courts, a five month wait for a ruling isn’t earth-shattering. But the D.C. Circuit usually dispatches FERC rulings at a much faster pace.  In fact, last year, all but two of the court’s thirteen decisions in FERC cases issued within three months or less from the date of argument.

So what does this all mean? Used to be that a waiting time of longer than two months meant a win for the appellants and a reversal or remand of the FERC order. While that’s no longer the case (as last year’s calendar shows, FERC won the two of the cases that took the longest to decide, while FERC lost in one of the cases where the court ruled in a scant six weeks.  Still, at a minimum, the five month wait suggests that the court may be having some difficulty in reaching a decision. 

And that’s not surprising. During the oral arguments (which I listened to recently), most of the court’s questions related not to FERC’s LMP pricing methodology, but rather, to FERC’s jurisdiction to set pricing rules for demand response at all. On the one hand, when demand resources are aggregated and offered as a bundle into wholesale markets, they resemble the same type of wholesale sale over that FERC has exclusive authority to regulate under the Federal Power Act. Yet, on the other hand each individual aggregated transactions – all of the industrial and commercial and even residential customers who sign up to agree to curtail power in exchange for payment – is essentially a retail deal, which states have long regulated. So there’s a question of whether FERC’s demand response rule regulates indirectly the retail rates that it cannot regulate directly.

Not only is the demand response question a tricky one on its own, but the issue is further complicated by the pending Order 1000 appeal which also raises questions about whether FERC  exceeded its authority and encroached on state rights. The court may have this case on its mind as it works through the demand response appeal.

It’s possible that the court, if it’s on the fence may try to split the baby, perhaps remand the demand response rule to FERC for further consideration. If that happens, that’s where the fun begins. Chairman Wellinghoff, chief architect of FERC’s demand response policy has left the Commission.  Commissioner Moeller who authored the dissent now has “partner in crime” with Commissioner Clark who often joins Commissioner Moeller’s dissents or authors his own. Meanwhile, FERC is still operating with four commissioners until the Senate confirms the President’s recent nominee, Norman Bay.

In the nearly three years since Order 745 issued, demand response has become entrenched in power markets. So it’s not clear whether invalidating FERC’s rule or remanding it for further explanation will have much effect at this point. We’ll keep our eye out for the court’s ruling because whichever way it goes, the decision is bound to offer insight about where to draw the line between FERC and state jurisdiction, wholesale and retail transactions. After five months, the court undoubtedly will have something to say about that.

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