The U.S. Supreme Court heard oral argument this morning in FERC v. Energy Power Supply Association. At issue is the validity of FERC’s Order 745, the so-called “demand response” compensation rule. Full text of the rule (PDF). As some of our readers may recall, I was FERC Chairman when Order 745 was issued.
While the legal arguments got duked out in court today, I thought our readers might like to review comments I provided earlier this year on the legal challenges to Order 745. I made the comments in a live interview with Malcolm Woolf, Senior Vice President, Policy and Government Affairs at Advanced Energy Economy (AEE). A recording of the interview is available. A transcript of the interview is also available.
The role of demand response is multiple. First, it has the ability to in essence be an energy resource that is equivalent to generation resources and do so on a very robust way across our economy given the advances in technology. So it can in fact provide energy capacity ancillary services and has demonstrated the ability to do so. More importantly, because of its flexibility, it also has the ability to allow us to more fully integrate in the variable resources of sun and wind that are increasing in our society and become an increasing part of that energy and a necessary part of the energy mix to get us to a low carbon, no carbon society. So, I see demand response as really the glue that could hold together a low carbon society.
[T]he reasoning of the majority in this case is somewhat opaque to me. I in fact support and endorse the dissent that Judge Edwards wrote, which was a very lengthy and very detailed, and I think well-reasoned dissent, and does lay out a lot of the things that I’ve already talked about with respect to FERC’s authority and implicit authority under Sections 824(d) and (e) of the Federal Power Act. But for some reason, the majority got it in their head in some way that because you have a retail customer who is changing their usage, that somehow is a retail product but ultimately it would be like saying that a generator buying a ton of coal at retail, therefore makes the generation coming out of that generator a retail product because they bought coal at retail to put into the steam turbine to make electricity. What aggregators do is they buy something from a retail entity, that is a retail consumer, but they then aggregate it together and they put it into a wholesale market, and it effects wholesale markets, so it in no way is a retail product.