Supreme Court Rules on FERC Order 745

Jan 28, 2016 5:27:41 PM by NuEnergen

FERC Order 745If you've been keeping up with our recent posts, you know that we've been speculating on the outcome of FERC Order 745. We're happy to tell you that the Supreme Court has come to a decision and that it's great news for those with an interest in the energy sector: Order 745 has been vacated. In other words, Supreme Court Justices have determined that the actions that take place on the customer side of the meter is economically equivalent to the actions that take place in wholesale electric markets. As a result, demand response suppliers and companies associated with energy efficiency and battery storage will be protected in their efforts, and consumers will continue to reap the benefits.


A Closer Look at the Ruling


In order to fully understand the significance, here, let's take a closer look at the vacating of Order 745.


The vacating of the order stated once and for all that the Federal Energy Regulatory Commission (FERC) did, indeed, overstep its bounds by allowing demand response to participate in wholesale power markets. A lot had to be considered before this decision could be made, though. For those with concerns about the order, the primary issue was related to the ways in which customers were being compensated for any kilowatt hours that weren't consumed during a demand response event. In a nutshell, these customers were being paid the spot market price for power even though they were also not being required to pay for the energy they no longer consumed. The initial decision by the Circuit Court of Appeals stated that this was a retail market issue that would fall under state jurisdiction. 


The Supreme Court, on the other hand, disagreed. According to these Justices, the Federal Power Act gives the FERC the power and authority to oversee demand response and that the "practices at issue directly affect wholesale rates." Going against this would conflict with and completely undermine the FPA's purposes. The Court further stated that rewarding demand response the the ways outlined above have a significant impact on wholesale rates and that the FERC has an obligation to make sure that all practices which affect wholesale rates are "just and reasonable."


What It Means


So what does all of this mean for the energy sector (and, more importantly, you)? First, customers will continue to be able to be paid under the existing formula. In addition to this, we can rest assured than any existing demand response programs will not be forced to change, nor will they be eliminated. Finally, the ruling fully protects the smart grid by supporting the encouragement of consumers to change behaviors as a means of reducing overall wholesale power prices. What you should keep in mind is that these types of consumer behaviors are likely to fall under FERC jurisdiction if they play a role in guaranteeing that wholesale rates are "just and reasonable."


Ultimately, the Supreme Court's decision has empowered customers while helping out demand response providers. The end result is that we can expect accelerated progress towards a better, more efficient grid.


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