The Supreme Court’s Gift to Climate and Consumers

In a string of victories for climate progress in the U.S., the Supreme Court today preserved crucial gains for clean energy and paved the way for more progressive federal energy policies in the future.

At stake in the case, FERC v. EPSA, was the future of “demand response” in our electric power markets. As the Court nicely summarized, demand response is the practice of meeting power demand by paying electricity “users to dial down their consumption” rather than “paying power plants to ramp up their production.” Because conserving energy is generally cheaper than running or building new power plants, demand response saves customers money—nearly $12 billion a year in the country’s biggest power market, PJM. And demand response makes our grid more reliable by preventing the system from overloading on hot summer days and other times of when demand for electricity is at its peak.

After 15 years of playing in the wholesale energy markets, the crucial role played by demand response should be uncontroversial. But from the vantage point of companies running power plants, the growing demand response industry has become too successful. In other words, power plants, and most especially coal plants, are losing market share to cheap demand response resources that are helping to make the flexible, clean energy grid of the future.

In a bid to kick demand response out of the power markets, the Electric Power Supply Association (EPSA) challenged Order 745, a federal rule that entitles demand response to equal pricing relative to power generators. In 2013, the D.C. Circuit ruled for EPSA, finding that the Federal Energy Regulatory Commission (FERC) was exceeding its authority in trying to regulate demand response and further holding its pricing scheme unlawful. Earthjustice served as co-counsel in seeking Supreme Court review of the decision. Today, the Supreme Court restored order and resumed progress by rejecting the antiquated logic animating the D.C. Circuit’s opinion. 

Writing for the majority in a 6-2 decision, Justice Kagan affirmed:

“[I]n promoting demand response, FERC did no more than follow the dictates of its regulatory mission to improve the competitiveness, efficiency, and reliability of the wholesale market.”

It is worth unpacking the world view that the majority rejected in reaching this profoundly sensible decision, with all of its enormously beneficial consequences, both for consumers who will pay lower electricity bills and for the climate which will be saddled with less carbon pollution from power plants.

EPSA was arguing that the Federal Power Act, enacted in 1920, created a bright line between state and federal authority that would leave the federal government powerless to regulate, much less incentivize, demand response and, by extension, other demand-side energy management. In adopting a modern, common-sense reading of the law that recognizes the inevitable interplay between federal and state energy regulation and recognizes the expertise of the FERC, rather than the courts, in setting energy policy, the Court has not only preserved a burgeoning market for demand response but also cleared the way for further action by the FERC to secure our energy future.

Looking beyond the complexities of energy regulation, this decision recognizes the crucial role that federal regulation plays in delivering the kinds of social goods, like affordable electricity, that we all depend on. If EPSA and Justice Scalia had had their way, they would have struck down Order 745 as an unlawful “power grab” by the FERC, purporting to defend state rights even in the absence of any complaining state. But the majority declined the political invitation to block progressive FERC regulation as an overreach by the executive branch. And the majority declined to interpret an old statute in a way that would privilege an illusory past at the expense of our future. That is cause for celebration today and cautious hope for the outcome of important decisions to come.