Power Play at the Supreme Court Another illegal rule against fossil fuels may be overturned.
http://www.wsj.com/articles/power-play-at-the-supreme-court-1444862800
The Obama Administration’s crusade against carbon returned to the Supreme Court on Wednesday, as the Justices heard an important federalism challenge to an energy scheme that usurps state powers to promote the green agenda. The oral arguments suggested they may be queueing up another judicial rebuke.
The culprit this time is the Federal Energy Regulatory Commission, or FERC, which regulates most of the electric grid. In 2011 FERC ordered transmission operators to pay retail energy users to reduce their power consumption during peak periods, a program known as “demand response.” The idea is to send a price signal to encourage large consumers to use power when the most capacity is available—instead of, say, on a hot summer afternoon when everybody’s air conditioners are running.
In FERC v. Electric Power Supply Association, the problem is that Congress explicitly limited the commission’s mandate to the interstate power markets—i.e., to the wholesale power supply. Under a 2005 law, the “exclusive jurisdiction” of retail pricing and patterns of energy consumption belongs to the states.
FERC attempted to erase this bright line by claiming that the regional wholesale markets and the state retail markets are essentially no different, because changes in the one would inevitably beget changes in the other. By this logic, FERC could regulate anything—fuel production, or what type of power plants are built—that has some distant connection to wholesale, with no limiting principle.
“Wholesale affects retail, retail affects wholesale, they’re interlinked, which means you win the case, except the statute makes a distinction,” Justice Anthony Kennedy told Solicitor General Donald Verrilli. “We have to make a distinction. Can you tell us what the distinction is that marks the end of federal power and the beginning of local power?” The SG had no answer, despite several follow-ups. Chief Justice John Roberts said the FERC rule reduced state control to a “pure formality.”
Demand response can help run the grid more reliably and safely, and this well-intentioned tool is more widely used in electric markets where FERC has no role at all. State-specific integration based on local needs is better than top-down instruction from Washington. But FERC rigged demand response to discriminate against fossil-fuel power. For this reason, the D.C. Circuit Court of Appeals struck down the rule as an illegal abuse.
FERC decreed that a megawatt added to the grid should be priced the same as a “negawatt” that is never consumed. Thus businesses that joined the demand-response program—like a factory—could be overcompensated for agreeing not to use energy at certain times, while an electricity supplier that must incur the costs of actually generating and delivering power to consumers is underpaid.
In practice, demand response paid out twice, once from the FERC rebate plus the savings of not purchasing energy. Overpaying for inaction to boost conservation over economic activity distorts incentives, while underpaying for tangible economic benefits leads to capital malinvestment and imposes gratuitous burdens on productive power generators. “We don’t want to pay twice as much as the market really should pay for demand response,” as attorney Paul Clement put it.
The High Court has been skeptical of Administration claims to command the economy on environmental pretexts. The FERC rule is another ripe candidate to overturn.
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