WASHINGTON—The Supreme Court on Monday upheld the federal
government's ability to spur incentives for industrial businesses,
schools and other large energy consumers to reduce energy usage at
times of peak demand.
The court, in a 6-2 ruling by Justice Elena Kagan, said the
Federal Energy Regulatory Commission acted within its powers in a
2011 order that required wholesale electricity market operators to
pay higher levels of compensation to power customers that agreed to
reduce their electricity use.
The decision is a notable and somewhat surprising win for the
federal energy regulator, as well as for environmentalists that
supported the commission's efforts.
When the Supreme Court heard oral arguments in October,
conservative justices voiced skepticism about the FERC rule. On
Monday two conservatives—Chief Justice John Roberts and Justice
Anthony Kennedy—joined with the court's four liberal justices in
ruling for the commission.
The decision reversed a federal appeals court ruling from 2014
that invalidated the FERC order.
FERC said its rule provided fairness in wholesale electricity
markets and reduced the prospect of blackouts and brownouts when
the nation's power grid becomes strained. It also said the rule
produced billions of dollars in consumer benefits by reducing
wholesale electricity costs that consumers bear.
Jon Wellinghoff, former FERC chairman when the commission issued
the 2011 rule, said the decision makes energy-control technology
more valuable "and allows you to use it, not only to reduce your
own costs but to get additional value by selling your services to a
larger market or allowing someone else to sell it for you."
The Supreme Court's decision was a loss for power generators and
utilities that accused FERC of unlawfully distorting energy markets
and suppressing demand for the electricity they sell.
Shares of big power sellers including NRG Energy Inc., Dynegy
Inc. and Calpine Corp. dropped sharply after the ruling. EnerNOC
Inc., which provides energy management and conservation services,
shot up more than 65% on the decision.
The incentives come into play during high-demand periods on some
regional markets, where wholesale market operators, which are often
nonprofits, match buyers and sellers of electricity.
At times of peak demand it is costly for electricity generators
to increase supply, so wholesale market operators sometimes pay
large energy consumers such as industrial companies and large
retailers to cut their use instead. The FERC rule seeks to regulate
and stimulate that process.
Under the rule, organized energy markets such as giant PJM
Interconnection, which serves 13 Eastern and Midwestern states, are
required to let consumers reduce their energy demand in exchange
for payments comparable to what power generators would have
received to provide a similar amount of power.
A key legal question in the case stemmed from the dual nature of
electricity regulation. FERC regulates at the wholesale level,
while the states regulate retail electricity markets.
Industry challengers argued FERC's rule intruded on the domain
of the states because the commission was targeting retail
electricity use, even if the rule itself applied only on wholesale
markets.
Justice Kagan, writing for the court's majority, rejected that
argument. She said FERC rules invariably will have some effect on
retail electricity markets, but that didn't make them unlawful.
"FERC set the terms of transactions occurring in the organized
wholesale markets, so as to ensure the reasonableness of wholesale
prices and the reliability of the interstate grid—just as the
[Federal Power Act] contemplates," Justice Kagan wrote.
Justices Antonin Scalia and Clarence Thomas dissented, saying
they believed FERC's efforts wrongly focused on retail-level energy
consumption.
The decision came on a day when the Supreme Court opened for
business while the rest of the federal government was shut down in
Washington after a weekend blizzard.
FERC Chairman Norman Bay said the ruling "means that consumers
will continue to see the significant benefits of demand response,
which enhances competition in the markets, reduces wholesale prices
and helps make the grid more reliable."
The Environmental Defense Fund, one of several environmental
groups that supported FERC, said the court's ruling was "a major
victory for customer-friendly, clean, low-cost and reliable
energy."
John Shelk, president and CEO of the Electric Power Supply
Association, a lead plaintiff in the lawsuit, had no immediate
comment.
Justice Samuel Alito was recused in the case. As is custom at
the court, he didn't announce the reason for his recusal, though
his non-participation appeared necessitated by his family's stock
holdings.
--Amy Harder contributed to this article.
Write to Brent Kendall at brent.kendall@wsj.com and Rebecca
Smith at rebecca.smith@wsj.com
(END) Dow Jones Newswires
January 25, 2016 15:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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