Supreme Court skeptical of energy rule

The Supreme Court appeared to side Wednesday with energy industry groups in a case challenging the federal government’s authority to regulate electricity supply and demand.

At issue in the case — known as FERC v. the Electric Power Supply Association — is whether the Federal Energy Regulatory Commission overstepped when it imposed a rule requiring electric utilities to pay end users to cut their consumption when demand rises.
 
The Electric Power Supply Association and four other energy industry groups argued that FERC went too far and encroached on states’ exclusive authority to regulate the retail market.
 
 “Can you tell us what the distinction is that marks the end of federal power and the beginning of local power,” Justice Anthony Kennedy asked Solicitor General Donald Verrilli Jr., who argued on the agency’s behalf.
 
FERC claims it has the authority under the Federal Power Act to regulate any practice that affects wholesale markets. It contends that its program, known as demand response compensation, reduced retail consumption and ultimately lowered wholesale prices.
 
But Justice Antonin Scalia said FERC’s rule effectively raised the retail price during peak hours. Those who wished to forgo the benefit, he said, ultimately ended up paying more.
 
“FERC has the power to regulate the wholesale rate, but the argument is not through the fiddling around with retail rates, which is what is asserted is happening here,” he said.

Chief Justice John Roberts compared electricity to hamburgers during the hourlong arguments.
 
If FERC stood outside McDonald’s and offered to pay people $5 not to go in and buy a $3 hamburger, he said, economists would say the hamburger really costs $8 because if you give up the $5, you still have to pay the $3.
 
“And your answer is, there’s no impact on what the states can do, because they can still say, no, the price of the hamburger should be $2, or it should be $4,” Roberts said while questioning Verrilli. “The point is that FERC is directly affecting the retail price.”
 
When it comes to what the agency can and can’t regulate, Roberts said “there needs to be some sort of limiting principle, otherwise FERC can do whatever it wants.”
 
Verrilli said FERC is comfortable with the court drawing a line and that he disagrees with the lower court majority’s claim that by FERC’s rationale, the agency would have the authority to regulate any number of areas, including the steel, fuel and labor markets.

“We don’t think FERC’s authority goes anywhere near that far,” he said.
 
Arguing on behalf of EnerNOC Inc., which backed the FERC rule, attorney Carter Phillips said the fact that there will be an effect on retail rates does not deny the agency the authority to regulate actions that affect the wholesale market.
 
Though it may not be the intention, Kennedy said, the effect of the rule impacts the market.
 
“So you say, oh well, we didn’t mean this, but we’re doing it,” he said.
 
Members of the court’s more liberal wing, however, appeared to be in agreement with the agency.
 
Justice Sonia Sotomayor asked the industry groups’ attorney, Paul Clement, why if FERC’s rule lowers prices is it “so horrible.”

“I’m not sure, ultimately, that my burden is to show that this is horrible,” Clement said, suggesting that he must show instead that the action goes beyond FERC’s authority.
 
Justice Samuel Alito recused himself from Wednesday’s arguments without an explanation, leaving the case to a panel of eight to decide.