US Supreme Court upholds wholesale demand response

The Supreme Court of the United States has issued an opinion upholding regional electricity grid operators' ability to operate wholesale demand response programs under federal authority.  In that opinion, FERC v. Electric Power Supply Assn., the Supreme Court reversed a lower court's decision invalidating the Federal Energy Regulatory Commission's regulation of electricity demand response.   While further evolution of demand response will continue, the Supreme Court's 6-to-2 ruling puts regional wholesale demand response programs back on surer footing after the uncertainty injected by the lower court's previous ruling.  A grid portfolio including some degree of demand response can provide beneficial environmental, reliability, and economic effects compared to pure generation.  It appears relatively more likely that existing regional wholesale demand response programs may continue to operate under federal authority, and relatively less likely that a new state-driven demand response paradigm will arise.

As described in the Supreme Court opinion, wholesale electricity demand response programs pay consumers for commitments to reduce their consumption of electricity during peak demand periods or other times of scarcity or high prices.  For about 15 years, wholesale market operators have increasingly adopted wholesale demand response programs, with the blessing of both Congress and the FERC.  In 2011, the FERC issued its Order No. 745, establishing a rule requiring market operators to pay the same price to cost-effective demand response providers for conserving energy as to generators for producing it. 

But that order was challenged by an association of generators, among others.  In May 2014, the D.C. Circuit Court of Appeals issued a ruling in Electric Power Supply Association v. Federal Energy Regulatory Commission vacating Order No. 745.  Its chief logic was that FERC lacked authority to issue the order on jurisdictional grounds -- because in the lower court's view, Order No. 745 directly regulates the retail electric market.  Under the Federal Power Act, FERC is authorized to regulate "the sale of electric energy at wholesale in interstate commerce," but cannot regulate "any other sale" (i.e. any retail sale) of electricity.

But today's Supreme Court ruling held that the Federal Power Act does provide FERC with the authority to regulate wholesale market operators' compensation of demand response bids.  The Court divided its analysis of this point in three parts.

First, the Supreme Court held that the practices at issue directly affect wholesale rates.  In the Court's words, "Wholesale demand response is all about reducing wholesale rates; so too the rules and practices that determine how those programs operate."

Second, the Supreme Court noted that FERC has not regulated retail sales.  "Here, every aspect of FERC's regulatory plan happens exclusively on the wholesale market and governs exclusively that market's rules.  The Commission's justifications for regulating demand response are likewise only about improving the wholesale market."  Putting the first and second sets of conclusions together, the Court found that the rule established by Order No. 745 complies with the plain terms of the Federal Power Act.

Third, the Court noted that adopting a contrary view would conflict with the core purposes of the Federal Power Act: "The FPA should not be read, against its clear terms, to halt a practice that so evidently enables FERC to fulfill its statutory duties of holding down prices and enhancing reliability in the wholesale energy market."

The Supreme Court also addressed an alternative holding by the D.C. Circuit Court that the Order No. 745 compensation scheme is arbitrary and capricious under the Administrative Procedure Act.  The Supreme Court noted that its "important but limited role" in reviewing FERC's decision "is to ensure that FERC engaged in reasoned decisionmaking."  Noting FERC's detailed explanation of its choice to compensate demand response providers at LMP, the same price paid to generators, and its lengthy responses to contrary views, the Supreme Court held that "FERC's serious and careful discussion of the issue satisfies the arbitrary and capricious standard."

Justice Kagan delivered the Court's opinion, joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, and Sotomayor.   Justice Scalia filed a dissenting opinion, in which Justice Thomas joined, noting his belief that the Federal Power Act prohibits the FERC from regulating the demand response of "retail purchasers of power."  Justice Alito did not participate in the case.

The case now returns to the D.C. Circuit for "further proceedings consistent with this opinion." If Order No. 745 stands and FERC retains jurisdiction over the compensation paid to wholesale demand response market participants, it seems likely that existing regional wholesale demand response programs will continue to operate under federal authority.  As the Supreme Court found, these wholesale demand response programs can provide significant consumer savings when properly implemented.  How will demand response continue to evolve in the wake of FERC v. EPSA?  How does this decision reshape the boundary between wholesale (federal) and retail (state) jurisdictions?  What's next for demand response?

Maine court interprets wind energy law

Maine's highest court has issued an opinion interpreting Maine's laws governing wind energy project development.  The opinion, Champlain Wind, LLC v. Board of Environmental Protection, 2015 ME 156, is noteworthy for its analysis of "competing legislative purposes" in Maine wind energy law -- those designed to expedite the development of wind power in Maine, and those designed to protect scenic resources.

The Maine Supreme Judicial Court's December 3, 2015 opinion affirms an earlier decision by the state Board of Environmental Protection to deny a permit for the Bowers Wind Project.  In 2012 developer Champlain Wind had filed a consolidated application with the Maine Department of Environmental Protection, seeking state permits to construct the project.  As described in the opinion, that project would include 16 wind turbines with a combined generating capacity of 48 megawatts.  Geographically, the turbines fell "just within the boundary" of an area designated by the state Legislature for expedited wind energy development.  However, its turbines would be visible from nine great ponds classified as a "scenic resource of state or national significance" under state law.  Maine law gives enhanced protections to such scenic resources in wind project siting decisions affecting specified geographic areas.

After some process, the Department ultimately denied Champlain's application.  In so doing, the Department concluded that the project met all but one applicable standard.  The Department found that the project “would have an unreasonable adverse effect on the scenic character and existing uses related to the scenic character” of the nine affected great ponds.  This failure of the statutory scenic character standard led the Department to deny the requested consolidated permit.

Champlain appealed from the Department's denial to the Board of Environmental Protection.  The Board issued an order in June 2014 affirming the Department's denial.  Champlain appealed again, this time to the Maine Supreme Judicial Court.

The court's opinion on that case was published today.  Much of the court's opinion focuses on specific legal arguments in play -- for example, whether the Board could take an aggregated or "holistic approach" when considering a proposed project's impact on multiple scenic resources of state or national significance, and the level of judicial deference the court should afford the Board.

But for those interested in Maine wind energy development law, the most interesting parts of the opinion are likely those showing how the court interprets the Maine Wind Energy Act and related statutes.  As characterized in the introduction to the court's opinion,

the Board considered and balanced competing statutorily defined policies applicable to wind energy projects in Maine. The applicable statutes establish the dual policies of expediting wind energy development in defined geographic areas of Maine and at the same time providing enhanced protection for specific scenic resources. 

In its discussion, the court noted:

The generating facilities and wind turbines that make up the Project are proposed to be sited within the expedited permitting area; however, most of the nine great ponds affected by the Project—all of which are rated as outstanding or significant from a scenic perspective—are fully excluded from the expedited permitting area. Thus, as previously noted, the Board was confronted with a project that falls directly between competing legislative priorities.

The court recited the Board's consideration as having included:

• the “existing character of the surrounding area” and “significance of the potentially affected scenic resource,” see 35-A M.R.S. § 3452(3)(A), (B);
• the Legislature’s intent in balancing the goal of encouraging and expediting wind power development with the goal of protecting Maine’s scenic resources by limiting the geographic scope of the expedited permitting area; 
• the exclusion of most of the nine affected great ponds from the expedited permitting area; and 
• the unique interconnectedness of the affected great ponds, which would result in users being repeatedly confronted with views of the turbines from multiple scenic resources of state or national significance when traveling from one lake to another.

The court described these as "unique circumstances" and a "context of competing legislative priorities and unusually interconnected scenic resources."  In the court's view, presented with these circumstances and this context, it wasn't unreasonable, unjust, or unlawful for the Board to decline to issue the permit.  Because the court could not conclude that the Board acted unlawfully or arbitrarily or that the statutes compel a different result, the court deferred to the Board’s interpretation of the Maine Wind Energy Act and the statutes governing expedited permitting for grid-scale wind energy projects.

This opinion likely is most direct in its effect on those interested in the Bowers Wind Project, the parties and other stakeholders.  The Champlain Wind, LLC v. Board of Environmental Protection opinion may also catalyze renewed discussion about balancing what the court labeled "competing legislative purposes" in Maine wind energy project siting law -- on the one hand, to expedite the development of wind power in Maine; on the other, to protect scenic resources.