U.S. Supreme Court Hears EPSA Case

Jerry Elmer

On Wednesday, October 14, 2015, I had the honor and privilege of attending the oral argument of FERC v. EPSA at the United States Supreme Court, in Washington, D.C.

The case addresses Demand Response (DR) in electricity markets. You can see background on the case (including a discussion of what DR is and why it matters) in my previous blog; and you can read about the amicus curiæ (“friend of the Court”) brief that CLF (and other environmental groups) filed with the Court here. And you can see the complete transcript of the oral argument here.

The hearing provided a few surprises, and much food for thought.

The first surprise:  When I arrived at the Supreme Court at 6:20 AM, the spectators’ line was already down the block and around the corner — and all of those people were there for this case!  (I was able to get into the courtroom through the separate, lawyers’ line.) The reason that so many people wanted to hear this case is because there are billions and billions of dollars in ratepayer benefits at stake. CLF discussed this important issue in our Supreme Court brief, which you can see here, (at pages 7 through 16).

The second surprise:  While waiting in (the separate lawyer’s) line I was approached by a lawyer for PJM Interconnection; PJM is the FERC-licensed operator of the electricity grid for all or parts of 13 mid-Atlantic states. I had never met this man, but he thanked me for CLF’s brief, and commented on several points we had made in the brief.  (Boy, was I surprised!)

The third surprise:  In my first blog post about this case, in the section entitled “What the Circuit Court Ruled (And Why It Is Wrong),” I explained that Circuit Court reasoned that the Federal Power Act (FPA) gives FERC jurisdiction only over sales of electricity; and, as the Circuit Court said, “demand response is not a wholesale sale of electricity; in fact, it is not a sale at all.” Thus (the Circuit Court reasoned) FERC has no jurisdiction to regulate DR. Surprisingly, none of the oral argument focused on that issue. I think both sides recognized that the Circuit Court was just wrong about this — because the FPA confers jurisdiction on FERC to address all things that “affect” wholesale prices, and DR clearly does that.  Instead, both sides focused on the divide between wholesale electricity markets and retail markets. This is important because the FPA confers jurisdiction on FERC to regulate wholesale markets; but reserves to the states jurisdiction over retail markets. (You can see this distinction being discussed between Solicitor General Verrilli, representing FERC, and Justice Kennedy, in the Transcript, at page 4 line 12 through page 5 line 14. See also page 40, lines 11-14.)

One of the strongest arguments that FERC has jurisdiction to regulate DR is that in 2005, Congress amended the FPA to give FERC that jurisdiction. As I said in my prior blog post:

In 2005, recognizing the benefits to ratepayers of DR, Congress amended the FPA and specifically gave FERC jurisdiction to regulate DR. Congress told FERC to issue regulations designed to promote and encourage DR. FERC issued its Order 745 [on DR] in response to Congress’s instruction – and FERC said so right in the Order (on page 9, in footnote 21).

In the oral argument on Wednesday, Justice Kagan raised this very point. She said:

It [would be] an odd result, given this The Energy Policy Act [in 2005, amending the FPA] which made it so clear that Congress liked demand response that it wanted FERC to lower barriers to demand response, to then say, well FERC has no jurisdiction to do exactly what the policy the Congress articulated is.  Transcript, page 45, lines 13-18.

Of course, Justice Kagan is absolutely correct, and this fact alone ought to end the case.

The other side was (very, very ably) argued by former Solicitor General Paul Clement. His strongest argument was this: My clients are states like Ohio and Illinois, and electricity utilities [called “Load-Serving Entities” or LSEs] that love DR. In fact, these states and utilities were using DR for years before FERC belatedly got into the act. The issue in the case is not who loves DR the most, but who has legal authority to regulate these retail sales. Since DR is really a retail commodity (not wholesale), the FPA gives the states, not FERC, legal jurisdiction to regulate it. (See Transcript at page 25 line 23 through page 26 line 11; page 33 lines 7 -19; page 42 line 6 to page 43 line 22.)

(Of course, this argument is directly refuted by Justice Kagan’s observation, cited above, that the FPA was amended in 2005, specifically to give FERC jurisdiction over DR.)

Sitting in the courtroom on Wednesday, I was reminded of an old adage of Archibald Cox. Cox was a revered professor at Harvard Law School, and served as Solicitor General to President Kennedy. Professor Cox always said that the way to win a case was to tell the Court why the world would be a better place if your side won. On Wednesday, Solicitor General Verrilli did that over and over again. He emphasized two points. First, if FERC did not regulate DR, ratepayers would stand to lose billions and billions of dollars. Second, if FERC did not regulate DR, grid operators would lose one of their most effective tools against black-outs and brown-outs at periods of peak load. (Transcript, page 7, lines 17-21; page 8, lines 21-14; page 12, lines 8-11.)

In his closing, at the very end of the hearing, SG Verrilli summed it up brilliantly in a few words. He said that DR is “a practice that has saved billions of dollars in wholesale costs and will save billions of dollars; it’s an effective tool against blackouts and brownouts. You have a statutory provision that gives FERC specific authority to regulate this practice.” (Transcript, page 57 line 22 to page 58 line 4.)

Mr. Verrilli was correct.

 

 

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