FERC Challenged on Demand Response
The Federal Energy Regulatory Commission exceeded its authority, intruding on states’ jurisdiction, when it issued a rule on compensation for demand response in certain wholesale energy markets, NRECA and other energy trade groups said.
FERC has no authority to regulate retail sales of electricity, the petitioners noted in a June 6 filing with the U.S. Court of Appeals for the District of Columbia Circuit. Nonetheless, they asserted, the commission “has attempted to circumvent” statutory limits on such authority.
How? When FERC required that certain retail customers receive payments for reducing their retail purchases of electricity, it treated those reductions as “the functional equivalent of producing energy for sale at wholesale.”
FERC’s Order 745, issued in March 2011, contains several other defects, according to the petitioners, including the Electric Power Supply Association, American Public Power Association, and Edison Electric Institute, along with NRECA and Old Dominion Electric Cooperative.
These problems include a compensation scheme that overcompensates demand response providers, and at the same time unfairly subsidizes them, the parties’ opening brief specified.
Finally, petitioners argued, the commission unlawfully imposed the new rate mechanism without first demonstrating that existing rates were unjust and unreasonable, as required by the Federal Power Act.
Numerous experts spotlighted the issues for FERC, but “the commission largely ignored these problems,” the brief indicated. The regulators instead concluded that their retail customer compensation scheme was justified “on the theory that regulating retail consumption decisions will help address unspecified ‘market imperfections.’”
The appeals court filing pointed out that Commissioner Philip Moeller had dissented on this compensation scheme, and on the commission’s December 2011 denial of Order 745 rehearing requests.
Petitioners pointed out that they represent the diverse interests of almost all major wholesale energy market participants, and that these interests “are rarely aligned” when it comes to the regulation of these wholesale markets.
They also noted that submittal of the joint brief is “a clear sign of how far the commission’s orders have gone astray.”
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