On July 7, 2014, FERC petitioned the U.S. Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) for an en banc rehearing of the D.C. Circuit’s opinion that vacated FERC’s Order No. 745, which required organized wholesale energy markets to compensate demand response resources at the market price for energy (see June 13, 2014 edition of the WER).

In May 2014, the D.C. Circuit, in a 2-1 decision, vacated Order No. 745 after determining that it encroached on states’ exclusive rights to regulate retail rates.  The majority reasoned that while Order No. 745 could affect wholesale rates, the correlation between wholesale rates and demand response was too indirect to justify FERC jurisdiction.  In contrast, the minority stated that demand response was squarely in FERC’s jurisdiction because Order No. 745 only required compensation when demand response resources affected the wholesale electricity market.

In its petition for en banc rehearing, FERC stated that the D.C. Circuit had “vacated a vital rule of national importance” by departing from federal precedent that provided guidance on the line between federal wholesale authority and state retail authority.  FERC argued that Order No. 745 was narrowly tailored and complied with that line by addressing only demand response resources in wholesale markets that directly affect wholesale rates.  FERC also argued that Order No. 745 did not encroach upon states’ exclusive retail jurisdiction because a state may prevent demand response resources within their borders from participating in demand response programs.  Moreover, FERC argued that no state has objected to FERC’s jurisdictional claim in Order No. 745, nor endorsed the court’s May 2014 decision.

In addition to its jurisdictional arguments, FERC stated that the D.C. Circuit’s opinion had far-reaching implications that could harm FERC’s ability to carry out its statutory duties.  FERC stated that a narrow interpretation of the opinion would restrict participation of demand response only in wholesale markets, thereby limiting FERC’s ability to support competition, reduce wholesale prices, mitigate market power, and ensure reliability.  Alternatively, a broad interpretation would bar demand response participation at any level and in any wholesale market, resulting in deficiencies in planning reserves and harming state efforts to meet policy and cost-effectiveness goals for retail customers.

In order for the D.C. Circuit to grant a full review, a majority of the 11 active D.C. Circuit judges must agree to rehearing.  If the D.C. Circuit agrees to grant such a rehearing, the court can decide the case on the current briefing, request a new round of briefing, or request a full en banc oral argument.

A copy of the petition is available here.