Court Upholds FERC Order 745

Washington, D.C., January 26, 2016 – The United States Supreme Court issued an order Monday that will have far-reaching and positive impacts on the modernization of U.S. energy markets. The Supreme Court found that the Federal Energy Regulatory Commission (FERC) had the authority to regulate demand response programs under the Federal Power Act (FPA), and “engaged in reasoned decision-making” when setting the wholesale rate for demand response compensation. This decision is a monumental win for demand response participants and consumers alike, as proper compensation and robust market participation will result in lower prices, increased reliability and more efficient operation in U.S. electricity markets. 

Issued in 2011, under the leadership of then-Chair of FERC Jon Wellinghoff, Order 745 sought to support the participation of demand response resources through the wholesale energy markets by treating generation and demand response equivalently – both from a market participation and compensation perspective. The Supreme Court opinion Monday upheld the basic premise of Order 745: that demand response resources help lower prices and increase the reliability of the electric grid, and that support of demand response is consistent with Congressional direction expressed in the FPA.

“This ruling clears the way for residential, commercial and industrial consumers alike to be fully compensated for participation in demand response programs across the nation,” said Kateri Callahan, president of the Alliance to Save Energy. “We have long supported equitable demand response compensation, and welcome the Supreme Court’s decision and their support of demand response and energy efficiency technologies, which are transforming and modernizing our electricity grid.”

In addition to immediately affecting demand response resources participating in the wholesale energy markets, this week’s decision is particularly relevant to energy efficiency resources that also have been able to bid their energy savings into wholesale capacity market auctions. If the lower court’s order had not been overturned, efforts by certain parties to remove both demand response and energy efficiency from wholesale capacity markets would likely have resumed. Instead, the 6-2 ruling places the participation in wholesale markets of demand-side resources such as energy efficiency on solid legal footing.

Alliance to Save Energy director of research Kevin Lucas said, “Fair, market-based compensation in competitive wholesale energy markets is a critical step towards increasing the deployment of energy-saving technologies such as whole-building controls and smart-grid-enabled analytics. With major legal questions now resolved, the direct benefits to consumers of these products and services are sure to follow.”

"We were very happy to see yesterday's Supreme Court decision to uphold Order 745, which will ultimately save consumers and businesses billions of dollars," said Terence Sobolewski, chief customer officer of National Grid in the U.S. "We see the ruling as a major win for our millions of customers who expect to be connected to the energy they use reliably, efficiently and affordably.”