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SCOTUS Takes Electricity Regulation Case

By Mark Wilson, Esq. on May 06, 2015 | Last updated on March 21, 2019

In the waning month or two left in the Court's October 2014 term, it issued an order granting cert. in a consolidated case that stands to impact electricity regulation nationwide.

The case was brought by the Electric Power Supply Association, a trade group representing several electric companies and regional electricity supply associations throughout the country.

Peak Pricing

Last May, the D.C. Circuit Court invalidated a Federal Energy Regulatory Commission rule regulating "demand response" pricing in the electricity market. You've seen this before in the form of increased electricity prices at peak hours, or monetary incentives to use less electricity at certain times.

But FERC's mandate applies only to the wholesale energy market. The retail market; i.e., your interactions as a customer with PG&E or Con Edison, is exclusively the states' domain. FERC claimed it was regulating only the wholesale energy market; it wasn't the FERC's problem that, in its opinion, retail customers are voluntarily drawn into the wholesale market when they're paid not to make retail purchases of electricity.

Judge Janice Rogers Brown wasn't impressed, though. She said FERC's distinction was "a fiction of its own construction" because it's not regulating a sale of electricity; it's incentivizing a non-sale by inducing retail customers not to use electricity.

This Isn't Your Grandpa's Wholesale Electricity Market

The Supreme Court's order granting a writ of certiorari limited the issue to two questions: (1) Whether the FERC was reasonable in its conclusion that it had authority to regulate in this way; and (2) Whether the Court of Appeals erred in finding the rule arbitrary and capricious.

The discussion will likely center on a key argument of the FERC and the dissent to the D.C. Circuit case; namely, times ain't what they used to be. The electrical industry used to be "neatly divided into spheres of retail versus wholesale sales," said Judge Harry Edwards, but the entwining of the markets means that the FERC is trying to do the best it can with a statute written for a different time.

It will also probably center on what a "sale" is, as the FERC is empowered only to regulate "the sale of energy at wholesale in interstate commerce." This might be a tough -- ahem, sell -- as the Supreme Court emphasized in NFIB v. Sebelius that Congress' commerce clause power doesn't allow it to regulate consumer inaction. Similarly, the conservative justices may be just as skeptical that the FERC can purport to draw retail consumers under its wing by suggesting that a non-sale is a sale.

Justice Alito was recused from participating in the petition decision and will likely not participate in the argument and opinion, either. The order didn't say why he recused himself, but his 2013 financial disclosure shows investments in several energy and energy infrastructure companies.

An oral argument date hasn't been assigned yet, but it will probably take place sometime in the fall.

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