Departing Commissioner Clark has much to say about demand response ruling

A departing member of the Federal Energy Regulatory Commission, Tony Clark, cautioned his fellow commissioners not to read too much into a U.S. Supreme Court ruling Jan. 25 that upheld FERC’s authority to set rates for demand response programs.

The high court, in a six-to-two vote, with Justice Samuel Alito not taking part in the decision, ruled in favor of FERC in a case brought by the Electric Power Supply Association (EPSA). The Supreme Court upheld FERC Order No. 745. EPSA and other parties had initially gotten the demand response rule thrown out by the U.S. Court of Appeals for the D.C. Circuit.

Clark, who announced recently that he would not seek another term at the commission when his current one expires at the end of June, was not the only FERC member to weigh in on the decision.

Chairman Norman Bay issued a brief statement applauding the Supreme Court ruling.

“I am pleased with today’s Supreme Court decision on demand response,” Bay said. “This decision means that consumers will continue to see the significant benefits of demand response, which enhances competition in the markets, reduces wholesale prices, and helps makes the grid more reliable.”

But Clark, a Republican member of the commission, made extensive comments. Among other things, Clark said the ruling might blur the line between retail and wholesale. Clark also said that FERC should continue to look at its compensation system connected with demand response.

The former North Dakota Public Service Commission member suggested that FERC “step back and take a breath, so as not to miss the bigger picture.” It’s important to remember what the court did and did not do, Clark said.

“To hear some of the analyses of this week’s Supreme Court decision in FERC v. EPSA, one would think the Court stepped in to save demand response technology, future grid reliability, clean energy, and perhaps the very planet itself,” Clark said.

“With this week’s East Coast blizzard, I fear cabin fever may be setting in because all that amounts to rather gross hyperbole,” Clark added.

“In reality, the case was never about whether demand response technology would exist and play a role in the grid of the future. No person or party has seriously suggested demand response is not an important part of our electric grid,” Clark said. “Those who seek to categorize people as supporters (or not) of demand response based on their position in this case are playing the ‘you are with us or against us’ card. It is utter nonsense. This case was always about the jurisdictional door through which demand response would enter, and its associated compensation; nothing more, nothing less.”

He added that states, utilities and regional markets already have many mechanisms that are compatible with retail demand response participation, and “these programs have just sometimes been effectively crowded out by FERC’s current wholesale compensation mechanism.”

The issues in the Supreme Court case revolved around jurisdiction and compensation, Clark said.

“Jurisdiction was the bigger issue at play within the context of energy law and policy … At the same time, it is most decidedly not a complete obliteration of the jurisdictional lines drawn in the Federal Power Act (FPA),” Clark said.

Clark fears more litigation over time

“Rather, I would frame the decision as a step towards greater federal authority, but just a step; a further obfuscation of the line between retail and wholesale, state and federal,” Clark said. “I suspect the practical effect will be more litigation over time as various stakeholders seek to probe the outer boundaries of federal and state jurisdiction. If not ideal, it is hardly earth shattering either.”

Clark went on to say: “While jurisdiction under the FPA was the bigger issue long-term, it is worth acknowledging that was not why most parties lined up as they did and we shouldn’t deceive ourselves into thinking they inherently prefer one set of regulators over another. As it so often is, it is about the money. That this case has garnered so much attention says much about how financially lucrative the current mechanism is to one particular type of market participant. Yet the Commission’s job is not to support a particular technology, resource class or business model based on its subjective preferences; it is to dispassionately create mechanisms that find economically proper prices. Once the Court crossed the Rubicon of declaring FERC’s jurisdiction, it was unsurprising it left the compensation mechanism in place. For better or worse, the Supreme Court has given federal agencies exceptionally wide berth and deference on these types of calls. But let us not use that deference as an excuse to avoid revisiting decisions that we later find to be less-than-optimal. To its credit, over the past few years, the Commission has begun taking steps towards recognizing the importance of looking at its posture towards many resources: supply side and demand side. These efforts have taken the form of various tweaks, but the trend has been to refine these markets, to increase accountability, and to more appropriately reflect economic fundamentals.

“During the pendency of this case, it was unlikely the Commission would tee-up a technical discussion of the mechanism at the heart of the litigation. With the disposition of these matters, I would encourage the Commission to turn its attention towards a thorough assessment of the underpinnings of a compensation regime that continues to be widely panned by market experts,” Clark said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.