Supreme Court Upholds FERC’s Authority Over Demand Response Payments


The U.S. Supreme Court, in a 6-2 decision issued January 25, 2016, in FERC v. Electric Power Supply Association, upheld FERC Order No. 745 and ruled that the Federal Energy Regulatory Commission (FERC) has authority to establish demand response rules and rates in wholesale electric-power markets. Wholesale demand response programs pay for commitments to reduce use of power during periods of high electricity demand.

Order No. 745 requires wholesale market operators to pay demand response providers the same rate that is paid to electric power generators so long as the “net benefits test” is met. FERC developed the test to ensure that accepted demand response bids actually save consumers money. The Court of Appeals for the District of Columbia had vacated Order No. 745, ruling among other things that FERC had overstepped its authority because the order directly interfered with the states’ exclusive right to regulate the retail electricity market.

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