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Commissioner Tony Clark Statement
January 27, 2016
Supreme Court Decision pdf

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Supreme Court Decision on Demand Response

Opening Thoughts

“Now that the Supreme Court has decided the fate of FERC Order No. 745, it is time to step back and take a breath, so as not to miss the bigger picture. While it is easy to become distracted by the rhetoric that always surrounds a Supreme Court decision, we should be clear-eyed about what the Court did and did not do.

“To hear some of the analyses of this week’s Supreme Court decision in FERC v. EPSA, one would think the Court stepped in to save demand response technology, future grid reliability, clean energy, and perhaps the very planet itself. With this week’s East Coast blizzard, I fear cabin fever may be setting in because all that amounts to rather gross hyperbole.

“In reality, the case was never about whether demand response technology would exist and play a role in the grid of the future. No person or party has seriously suggested demand response is not an important part of our electric grid. Those who seek to categorize people as supporters (or not) of demand response based on their position in this case are playing the “you are with us or against us” card. It is utter nonsense. This case was always about the jurisdictional door through which demand response would enter, and its associated compensation; nothing more, nothing less. States, utilities and regional markets already have a number of mechanisms that are compatible with retail demand response participation; these programs have just sometimes been effectively crowded out by FERC’s current wholesale compensation mechanism.

“With that preface, I will offer a few quick reactions to the Court’s decision. As I noted, the issues in this case revolve around jurisdiction and compensation. I will address each in order.

Jurisdiction

“Jurisdiction was the bigger issue at play within the context of energy law and policy. As a general matter, I prefer the straight-forward reading of statutes as embodied in the dissent. Adherence to the actual text of statutes strengthens the certainty that is provided by the rule of law. If anything, I view the majority opinion as representative of the current Court’s drift away from textualism. Seen in that light, the decision is not shocking. At the same time, it is most decidedly not a complete obliteration of the jurisdictional lines drawn in the Federal Power Act (FPA). Rather, I would frame the decision as a step towards greater federal authority, but just a step; a further obfuscation of the line between retail and wholesale, state and federal. I suspect the practical effect will be more litigation over time as various stakeholders seek to probe the outer boundaries of federal and state jurisdiction. If not ideal, it is hardly earth shattering either.

Compensation

“While jurisdiction under the FPA was the bigger issue long-term, it is worth acknowledging that was not why most parties lined up as they did and we shouldn’t deceive ourselves into thinking they inherently prefer one set of regulators over another. As it so often is, it is about the money. That this case has garnered so much attention says much about how financially lucrative the current mechanism is to one particular type of market participant. Yet the Commission’s job is not to support a particular technology, resource class or business model based on its subjective preferences; it is to dispassionately create mechanisms that find economically proper prices. Once the Court crossed the Rubicon of declaring FERC’s jurisdiction, it was unsurprising it left the compensation mechanism in place. For better or worse, the Supreme Court has given federal agencies exceptionally wide berth and deference on these types of calls. But let us not use that deference as an excuse to avoid revisiting decisions that we later find to be less-than-optimal. To its credit, over the past few years, the Commission has begun taking steps towards recognizing the importance of looking at its posture towards many resources: supply side and demand side. These efforts have taken the form of various tweaks, but the trend has been to refine these markets, to increase accountability, and to more appropriately reflect economic fundamentals. During the pendency of this case, it was unlikely the Commission would tee-up a technical discussion of the mechanism at the heart of the litigation. With the disposition of these matters, I would encourage the Commission to turn its attention towards a thorough assessment of the underpinnings of a compensation regime that continues to be widely panned by market experts.”