In FERC v. EPSA, issued on January 25, 2016, the U.S. Supreme Court ruled, in a 6-2 decision, that FERC has jurisdiction under the Federal Power Act (FPA) to regulate demand response transactions in wholesale electricity markets administered by independent system operators (ISOs) and regional transmission organizations (RTOs). The Court also upheld, as reasoned decision-making, FERC’s determination that ISOs/RTOs should pay the same compensation (i.e., the market clearing price) to generators and demand response resources participating in the day-ahead and real-time energy auction markets. In so holding, the Supreme Court may have paved the way for FERC to provide regulatory incentives for other emerging electricity transactions and practices that blur the historical distinction between FERC-regulated wholesale sales and state-regulated retail sales.
Justice Kagan’s opinion for the Court recognizes that the federal-state jurisdictional divide is prone to dispute “because — in point of fact if not of law — the wholesale and retail markets in electricity are inextricably linked.” Slip op. at 1. The interrelatedness of wholesale and retail transactions and regulations will become more pronounced with the spread of distributed generation, energy storage capabilities, end-use energy conservation measures, and other transformative transactions. In this blog post, we offer some observations on how generalizable the Court’s jurisdictional analysis in FERC v. EPSA may prove to be for these future transformative transactions.
1. The statutory source of FERC’s jurisdiction. The Court’s jurisdictional analysis starts with FPA Section 201, which divides FERC and state jurisdiction as between, respectively, wholesale and retail sales. The Court confirmed that “the law places beyond FERC’s power, and leaves to the States alone, the regulation of ‘any other [non-wholesale] sale’–most notably, any retail sale–of electricity.” Slip op. at 1. Given this disjunction between federal and state jurisdiction, the D.C. Court of Appeals had held below that demand response, which entails a reduction in end-use consumption, while not a “sale” of any kind, is “part of the retail market,” and, therefore, falls on the state side of the jurisdictional boundary. See Slip op. at 12-13. Justice Kagan’s jurisdictional analysis is not, however, bottomed on whether demand response is, as a non-sale transaction, part of the wholesale or retail market. That is because her jurisdictional analysis of...
