Does FERC have jurisdiction over demand response?

On December 2, 2013, the Federal Energy Regulatory Commission (FERC) filed a petition for an order affirming its assessment of a civil penalty in the district of Massachusetts against Lincoln Paper and Tissue LLC (the defendant), alleging that the defendant engaged in a manipulative scheme as a retail customer in the electricity market in order to receive additional profits in a demand response program run by ISO New England Inc. (ISO-NE).

As in FERC v. Barclays, the court’s resolution of this case may affect the scope of FERC’s anti-manipulation enforcement authority going forward.

On February 14, 2014, the defendant filed a motion to dismiss the case arguing that FERC lacks jurisdiction over its participation in the demand response program. The demand response program initiated by ISO-NE was a FERC authorized program with the purpose of reducing energy prices by reducing overall consumption of (i.e. demand for) electricity. Therefore, to participate in the demand response program, the defendant had to reduce its retail consumption — i.e. to forego retail purchases of electric energy.

It is not settled whether demand response should be considered a wholesale electricity transaction or transmission service subject to FERC’s jurisdiction. The defendant argues that demand response is effectively a determination to not make a retail purchase of electricity.

Such a retail purchase would be subject to state, not FERC, regulation. Accordingly, the defendant contends that such a “retail non-purchase” is not FERC-jurisdictional. Conversely, FERC has asserted that it has jurisdiction over the defendant’s decision to not make a retail purchase because it affects wholesale rates.

The defendant responds that FERC has no jurisdiction regardless of whether the non-purchases indirectly have an effect on the wholesale market and that any other holding would allow FERC to improperly “do indirectly what it may not do directly.”

As FERC, under former Chairman Wellinghoff, aggressively moved to implement demand-response programs, a finding that such programs are beyond FERC’s jurisdiction would have a significant impact.

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