Supreme Court Backs Obama Administration Energy Conservation Rules

Supreme Court Energy Rules FERC

The Supreme Court ruled against energy companies on Monday, upholding an Obama administration regulatory approach to conserving electricity.

In a 6-2 ruling, the Court said that the Federal Regulatory Commission was well within its authority when it adopted “demand response” regulations that forced energy producers to pay consumers who used less electricity at certain peak times.

“It is a fact of economic life that the wholesale and retail markets in electricity, as in every other known product, are not hermetically sealed from each other,” Justice Elena Kagan wrote in the majority opinion.

The energy companies argued that only state regulators had the authority to promulgate such a policy. The FERC rules ended up driving many producers’ profits down. While they said the agency stepped out of bounds in regulating the retail market, Kagan said that the “rule addresses – and addresses only – transactions occurring on the wholesale market.”

Noting that the “demand response” rules target “excessive prices” and intends to “ensure effective transmission of electric power,” Kagan wrote that “FERC has amply explained how wholesale demand response helps to achieve those ends, by bringing down costs and preventing service interruptions in peak periods.”

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The case is Federal Energy Regulatory Commission v. Electric Power Supply. Chief Justice John Roberts and Associate Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor all joined in Kagan’s opinion. Antonin Scalia and Clarence Thomas dissented, while Samuel Alito recused himself, presumably due to financial conflicts although he did not specify a reason.

“Fiddling with the effective retail price of electric energy, be it through incentive payments or hypothetical credits, regulates retail sales of electric energy no less than does direct rate-setting,” Scalia wrote in his dissent.

Energy consumers and environmentalists praised the ruling. EnerNOC Inc., an energy conservation firm that provides “cloud-based energy intelligence software,” saw its shares jump nearly 70% on the news. The company’s CEO, Tim Healy, called the decision “a tremendous win for all energy consumers, for the economy, and for the environment.”

The Electric Power Supply Association, which had challenged the rule, had no public comment on the decision Monday.

Exelon, a EPSA member, backed the ruling. A spokesman said the company “support[s] demand response as a valuable tool for our customers to manage their energy costs.”

Written by Gene Giannotta

Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.