On June 11, 2014, FERC Commissioner Tony Clark released a statement largely agreeing with the U.S. Court of Appeals for the District of Columbia Circuit’s (“D.C. Circuit”) recent decision to vacate FERC Order No. 745, which required organized wholesale energy markets to compensate demand response resources at the market price for energy (see May 27, 2014 edition of the WER).  Commissioner Clark’s statement followed Acting Chairman Cheryl LaFleur’s announcement that FERC plans to seek an en banc review of the D.C. Circuit’s decision.  Clark had not yet joined the Commission when Order No. 745 was issued in 2011.

In his statement, Commissioner Clark addressed two issues raised by the D.C. Circuit: (1) whether FERC exceeded its authority under the Federal Power Act (“FPA”) by regulating retail market products that indirectly affected jurisdictional wholesale markets, and (2) whether FERC erred in requiring that demand response products be compensated at the same rate as an electric supply offer. 

With regard to the first issue, Commissioner Clark said he found the D.C. Circuit’s majority opinion persuasive, explaining that there must be some limit on FERC’s authority under the FPA.  Clark stated that the D.C. Circuit did not unreasonably draw FERC’s jurisdictional line between wholesale supply sales and retail consumption and compensation, although the distinction could have “far-reaching impacts.”   Clark also agreed with the D.C. Circuit that regulation of demand response belongs on the retail side of the market, which is regulated by the states, and suggested that, going forward, FERC should focus on enabling price-responsive demand instead of creating federal schemes for paying consumers not to consume power.       

With regard to the second issue, Clark argued that the D.C. Circuit’s ruling to vacate FERC’s full locational marginal price (“LMP”) requirement for demand response does not meet the burden required for en banc review because it is not of such exceptional importance to merit review and because it is not inconsistent with D.C. Circuit or U.S. Supreme Court precedent.  Furthermore, Clark agreed with the D.C. Circuit’s assessment that the full-LMP rate for demand response fails to recognize the costs that consumers avoid when they choose not to consume power.

A copy of Commissioner Clark’s statement is available here.