Supreme Court Rules in Favor of Demand Response

As the power sector evolves to accommodate innovations such as renewables and efficiency, utilities and providers have not always embraced change.

However, conservation proponents won a national battle recently, when the U.S. Supreme Court upheld a regulation supporting demand-response programs.

In 2011, the Federal Energy Regulatory Commission (FERC) adopted Rule 745, which requires regional transmission organizations (RTOs) to compensate power aggregators for demand reduction at the same rate that is paid for actual power generated.

Seeing a threat to their business model, power providers took legal action. In the lawsuit, the Court of Appeals for the District of Columbia Circuit vacated Rule 745, on the grounds that FERC overstepped its authority and that its compensation scheme is arbitrary and capricious.

The Supreme Court reviewed an appeal and overturned the ruling in January. According to the court, Rule 745 only concerns wholesale markets, and the fact that it affects retail markets is of “no legal consequence.”

The court also found that the compensation formula in Rule 745 is reasonable, accepting FERC’s explanation that, “the value of an accepted demand response bid to the wholesale market is identical to that of an accepted supply bid because each succeeds in cost-effectively balancing supply and demand.”

Demand-response programs allow market operators to reward power aggregators and large individual users for reducing power consumption at critical times. Compensating for power reduced at the same rate as power generated provides a greater incentive and makes demand-response programs more viable.

About the Author

Rick Laezman

Freelance Writer
Rick Laezman is a Los Angeles-based freelancer writer. He has a passion for renewable power. He may be reached at .

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