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The Solicitor General wants the U.S. Supreme Court to review a federal appeals court ruling that would vacate a Federal Energy Regulatory Commission policy to ensure payments for negawatts in wholesale power markets are just and reasonable. In a filing with the High Court Jan. 16, solicitor general Donald Verrilli told the justices they should review the matter because it’s “of substantial national importance” and is unlikely to be reviewed by any other court. Verrilli brought the case on behalf of the Federal Energy Regulatory Commission. Meanwhile, as FERC awaits closure in the case, commissioner Tony Clark said Jan. 22 that “losing control of demand response doesn’t mean we have to ignore it.” He said federal regulators still could work with states to make sure wholesale demand response transactions are fairly priced and do not distort the cost of power. At issue in the case brought by generators is FERC Order 745, issued in 2011. It established a methodology for pricing demand response purchases in wholesale markets to ensure that prices are just and reasonable. Those purchases are made in a bid to ensure that demand does not overload the grid. Utilities typically pay companies that aggregate short-term reductions in power use—commonly called negawatts because they reduce usage—instead of paying generators to supply more megawatts. Negwatts also are more economical than megawatts in some cases. Demand response is growing as a result of new automated technologies that can control power usage in buildings. It’s increasingly being used to lower the cost of maintaining grid reliability by minimizing the need to build expensive new power plants that run only during times of peak demand and sit idle most of the year. It’s also being employed to reduce the environmental impact of using electricity. However, a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit determined in a challenge to Order 745 that demand response transactions resided solely in the retail market. As a result, the court’s 2-1 opinion last May determined that regulating the price of those transactions was beyond the federal commission’s jurisdiction. That’s because under federal law, the commission has power to assure fair pricing solely in wholesale power markets, not in retail markets where regulation is reserved for the states. Verilli’s petition for Supreme Court review came after the appeals court denied en banc review last September. However, the appeals court did stay its decision, giving time for the High Court to look at the case. Verrilli told the Supreme Court that the lower court misread the very nature of the transactions Order 745 covered. “The demand response providers,” he wrote, “are actual and integral participants in wholesale markets themselves and the effect of their participation on the wholesale rate is far more immediate and direct than the effect exerted by retail consumption generally or the markets in generation in-puts.” To drive home the point, he posed a hypothetical question to the justices: “Suppose that a wholesale-market operator was vastly over paying for demand-response commitments, choosing to utilize them when it would be far more efficient to pay for additional generation instead. That overcompensation would inevitably result in a higher-than-optimal wholesale rate.” Verrilli continued, “Given that the Federal Power Act requires FERC to ensure that wholesale rates are just and reasonable, it is inconceivable that the Commission would lack authority to act in that situation.” He concluded that “the level at which demand-response providers are compensated by wholesale-market operators for bids into the wholesale system has about as ‘direct’ an effect and as clear a ‘nexus’ with the wholesale transaction as can be imagined.” William J. Kelly

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