On May 5, 2015, the U. S. Supreme Court agreed to hear a pair of related cases addressing so-called “Demand Response” in the electricity system. The pair of cases was referred to in the lower court as Electric Power Supply Association vs. Federal Energy Regulatory Commission (or EPSA v. FERC). Because of a peculiarity in how the U.S. Supreme Court names cases, the case will now be called FERC v. EPSA (that is, the names of the parties have switched places, but it remains the same lawsuit between the same parties).
On February 19, I posted a blog about the case that provided a lot of background: what Demand Response (DR) is, how FERC regulates it, what the lower court ruled, and why all this matters. I also explained that CLF had filed a so-called amicus curiæ (Latin for “friend of the court”) brief in the Supreme Court, urging the Supreme Court to do exactly what it has now done – hear the appeal – and I provided a link to the CLF’s amicus brief.
I posted two follow-up blogs with additional details about the case as it moved forward – on February 20 and on April 13. This blog assumes that the reader has seen those prior three blogs. (If you are puzzled or confused about any of the concepts or acronyms discussed here, take a look at those prior posts.)
What the Supreme Court Did
On May 5, 2015, the Supreme Court announced that it had granted the requested writ of certiorari. This means that the Supreme Court agreed to hear the case – as had been requested by FERC, the U.S. Solicitor General, CLF and other environmental organizations, utilities, state utility commissions, state consumer advocates, and others.
Specifically, the Supreme Court said that it would address and answer two distinct, but related, questions (I am paraphrasing the questions here, translating the Supreme Court’s technical legal language into plain English): (1) Does FERC have legal authority to regulate DR in wholesale electricity markets?; and (2) If yes (FERC has authority), was the specific price that FERC ordered to be paid “arbitrary and capricious”? (Remember that the original controversy arose because FERC had ordered relatively generous compensation for DR, in order to create incentives for DR.)
Justice Alito’s Recusal
The May 5 Supreme Court order stated that Justice Samuel Alito had recused himself from the case. “Recused” is the technical, legal term for “excused himself”; that is, Justice Alito did not participate in the argument or decision to hear the case. When a Supreme Court Justice recuses himself or herself, she does not have to explain why, and in this case Justice Alito offered no explanation. The most likely explanation is that Justice Alito may own stock in one of the companies that make up EPSA.
It is important to keep in mind that the standard for when a judge should recuse herself from a case is not merely if there is an (actual) conflict of interest. Judges are also supposed to recuse themselves if staying in a case could create question or public impression of impropriety. This is because we do not only want courts to actually be fair; we also want courts to be widely respected; thus, we seek to avoid even an impression of impropriety.
One more thing: Justice Alito’s recusal does not change the fact that the votes of five Justices will be needed to reverse the Circuit Court decision. If the full nine-member Court were sitting, a five-justice majority would be necessary to reverse the lower court’s decision. With an eight-member Court sitting (minus Justice Alito), a four-four split is possible; but a four-four split would leave the lower court’s ruling unchanged. Thus, in either case (with or without Justice Alito’s recusal) five Justices will be needed to reverse the Circuit Court’s decision.
The Second Question
The parties that filed the Supreme Court appeal (EnerNOC and FERC) only asked the Supreme Court to address the first of the two issues cited above (about FERC’s legal authority). (Likewise, CLF’s brief only addressed that first question, as we believed that that was by far the more important issue in the case.) Nevertheless, the Court decided to address both the jurisdictional issue and the additional issue of whether the actual rate set by FERC that must be paid to DR providers was “arbitrary and capricious.” It is difficult (or impossible) to guess what it means that the Supreme Court decided to address this second issue as well. It could mean no more than the Supreme Court wanted to dispose of the entire case at one time – perhaps because it had been persuaded by the briefs of the Solicitor General, CLF, and others that the issues in the case are really, really important.
It is possible that the Supreme Court will decide that the answer to the first question is yes (FERC does have jurisdiction to set a price for DR), and the answer to the second question is also yes (that is, the specific price that FERC set is arbitrary and capricious). If that happens, the Supreme Court would send the issue back to FERC and order FERC to re-consider the price. This does not necessarily mean that the new price that FERC sets needs to be lower (or even different) than the old price. In fact, the technical legal phrase “arbitrary and capricious” does not necessarily even mean “wrong.” The Supreme Court could find that FERC had not done enough research into what the price ought to be, or that FERC had not explained its decision-making process clearly enough, or that FERC ought to weigh additional factors in reaching its decision about price. This would mean that FERC’s process had been flawed, but not necessarily that its result was wrong. It is possible that, on remand, FERC could go through a new process, doing steps that the Supreme Court ordered it to do, and come up with a new price that is similar to, higher than, lower than, or even identical to, the price it had set earlier.
Of course, another possibility is that the Supreme Court answers the first question yes (FERC does have jurisdiction), and then says that the price that FERC previously set for DR is just fine (not arbitrary and capricious). In that event, the case would be over, and there would be nothing further for FERC to do.
Timing of a Decision and Implications
The decision now to hear the case means that the case will be argued during the Supreme Court term that begins in October 2015 and ends in June 2016. The Court’s decision will be announced by June 2016.
In part, this is a good thing. As I explained in my prior blogs, the Circuit Court decision that is being appealed here was very dangerous for multiple reasons; thus it is a good thing that the Supreme Court will consider the case and may reverse the Circuit Court ruling.
Nevertheless, damage is being done now, just by the uncertainty that is being caused by the Circuit Court decision. For example, ISO-New England, the entity that runs both the electricity grid and the wholesale electricity markets in New England, had planned to fully integrate DR into the New England electricity grid by June 1, 2017. In order to accomplish that, ISO would need to be doing expensive planning and implementation work right now. But because that expensive work would be wasted if the Circuit Court ruling is not reversed, ISO has put off even doing the planning for now. Even if the Supreme Court’s ultimate decision is favorable, the delay now will mean that DR will not be able to be integrated into New England’s electricity grid until June 2018, at the earliest. (The delay could be even longer if further proceedings at FERC are required after the Supreme Court renders its ruling.) These delays will cost New England ratepayers millions or even billions of dollars over time. That is, even if the Supreme Court’s decision is favorable, tremendous damage is being done now merely by the delay caused by uncertainty. (For background on the role and function of ISO-NE, see blogs here, here, and here.
Outcome of the Case
It is, of course, impossible to ever predict with certainty the outcome of U.S. Supreme Court cases. Nevertheless, I continue to be cautiously optimistic for several reasons.
First, in cases in which the Solicitor General (SG) appears, and where certiorari is granted (that is, the Court agrees to hear the case), the Supreme Court rules in favor of the SG’s side in 90% of the cases. This is one of those cases: Certiorari has been granted (on May 5) and the SG is urging reversal of the Circuit Court’s ruling.
Second, the Federal Power Act (FPA) supports the FERC/Solicitor General/CLF position. As I explained in my February 19 blog, the FPA was amended in 2005 specifically to give FERC legal authority to regulate DR.
Third, the Supreme Court’s precedents also support the FERC/Solicitor General/CLF position. As I explained in my February 20 blog, the last time a similar issue came before the Supreme Court, in 2002, the Court issued a strong decision in favor of broad FERC authority. Four of the Justices who were on the Court in 2002 are still on the Court today, and all four of them ruled in favor of FERC last time – two liberals (Ginsburg and Breyer) and two conservatives (Scalia and Thomas).
While it is impossible to predict the outcomes of court cases with certainty, I am cautiously optimistic in this case.