Amicus Curiae Brief — Fed. Energy Regulatory Comm'n v. Elec. Power Supply Ass'n, 135 S. Ct. 2049 (2015) (No. 14-840)

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Nos. 14-840 & 14-841 =

IN THE PES 7 o™

Supreme Court of the United

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FEDERAL ENERGY REGULATORY COMMISSION,

Petitioner,

v.

ELECTRIC POWER SUPPLY ASSOCIATION, et ai.,

Respondents.

ENERNOG, INC., et al.,

Petitioners,

v.

ELECTRIC POWER SUPPLY ASSOCIATION, et a.,

Respondents.

On Petitions For Writs or CERTIORARI TO THE

UniTED StaTES Court OF APPEALS FoR THE D.C. Circurr

—————————

—

Brief for Delaware Division of the Public Advocate, Office of

the People’s Counsel for the District of Columbia, Maryland

Office of the People’s Counsel, New Jersey Rate Counsel,

Pennsylvania Office of Consumer Advocate, West Virginia

Consumer Advocate Division, Conservation Law Foundation,

Environmental Defense Fund, The Environmental Law and

Policy Center of the Midwest, Natural Resources Defense

Council, The Sierra Club, and Citizens Utility Board as Amici

Curiae in Support of Petitioners

Davip T. GOLDBERG

Counsel of Record

DONAHUE & GoLpBERG, LLP

99 Hudson Street, 8th Floor

New York, NY 10013

(212) 334-8813

david@donahuegoldberg.com

Counsel to Amici Gustes Library of C

Additional counsel listed on signature page §_ Law Library

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ...................0.-eecesserseeeees il

INTEREST OF AMICI CURIAE .............cccccccceseeeceeeees 1

REASONS FOR GRANTING THE PEITITIONS

I.

Il.

The D.C. Circuit’s Decision Jeopardizes, For

No Statutory Reason, Important Benefits of

Demand Response Participation in Wholesale

cid salsnsihin celica eantetchatikaeiteipiinsaaepbiinieieendi 4

A. Demand Response Now Plays a Central

Role in the Electric Power System and

Secures Important Benefits the Public 4

B. These Critically Important Benefits Are

Distinct to Demand Response

Participation in FERC-Regulated

Wholesale Energy Markets and Are

Jeopardized By the Ruling Below .......... )

This Court’s Review Is Needed to Correct the

D.C. Circuit's Important, Erroneous, and

Practically Untenable Understanding of the

Statute’s Allocation of Regulatory

i dictnncitatadedandicssanenmnineninsinendiniiaiaes 13

A. The Federal Power Act Does Not Permit,

Let Alone Require, the D.C. Circuit’s

ic cccennnsesnsipascasnadumnisiliciiiies 13

B. The Decision Does Not Adopt a Legally

Permissible or Even Coherent Resolution

of the Regulatory Jurisdiction Issue .... 18

III. This Court’s Review Is Needed to Prevent

The D.C. Circuit’s Error From

Destabilizing Important Markets Outside

a insteinnalleliiciiaal 20

IG tedtciinitenenniscirmnnensnienendnnsecniiuncianieianatn 24

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TABLE OF AUTHORITIES.

STI srncietbiticesieneuncciniteneiiididininessleieaioeslanidiniatieameiemminndianisth Page(s)

City of Arlington v. FCC,

133 S. Ct. 18663 (2013)..............0.......... 2, 15, 16, 17

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984)............ 2, 13, 15

Cohens v. Virginia, 19 U.S. 264 (1821) ...........0.00..... 20

Connecticut Dep't of Pub. Util. Control v. FERC,

569 F.3d 477 (D.C. Cir. 2009)....................0000. 5, 22

Fed. Power Comm'n v. Louisiana

Power & Light Co., 406 U.S. 621 (1972)............ 20

Mississippi Power & Light Co. v. Moore,

I a 16

Morgan Stanley Capital Grp. Inc. v.

Pub. Util. Dist. No. 1, 554 U.S. 527 (2008).......... 4

New England Power Generators Ass'n v. FERC,

767 F.3d 283 (D.C. Cir. 2014).............00ccc.cesccceees 22

New York v. FERC, 535 U.S. 1 (2002).............0.0.00 15

NRG Power Marketing, LLC v. Maine Pub. Util.

Comm'n, 568 U.S. 165 (2010) ................cc0seeccees 23

United Gas Pipe Line Co. v. Mobile Gas Service

CI, BD OEE. TIRES CID dcncsctecccvccscesescceccesnccses 23

ill

Zenith Radio Corp. v. United States,

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Statutory Provisions

I, SI oa ccnaciscananscuinesbedinddsivediinneesinieotine 1, 2, 14

ter ria aennccatineniiarmmnmittieliin 14

aia sti nemiiieeiieabiaebnnaniaeds 2,14

Energy Policy Act of 2005,

Pub. L. No. 109-58,

§ 1252(f), 16 U.S.C. § 2642 note.................00. 5, 18

Regulatory and Administrative Materials

1D Citic BBB Ba oc cvcsccccceresvessssesscsscecsces 11, 16

Order 719-A, 128 FERC 4 61,059 (2009) .................. 7

New England Power Pool and ISO New England,

Inc., 101 FERC 4 61,344 (2002) .....................00008- 3

Complaint, FirstEnergy Serv. Co. v.

PJM Interconnection, LLC,

FERC Docket No. EL14-55-000

RES ee 22

Complaint, New England Power Generators Ass'n

v. ISO New England, Inc., FERC Docket No.

EL15-21-00 (filed Nov. 14, 2014)............0.....00006 22

iv

PJM Interconnection, LLC, ER15-852-000

BOTA: BG, TEED vitsccnsoncnnsetesndsetiteisinbeiasdainiaiieameane 23

Letter of New England Conf. Pub.

Utilities Comm'rs, FERC Docket

No. RM10-17 (July 1, 2014)... eee 13, 21

Other Materials

American Lung Ass'n, State of the Air (2014) .......... 8

Brattle Group, Quantifying Demand Response

ED OB re TED vkcnnsthinstncsectepsccneiennalicuniiel 7

Electric Energy Market Competition Task Force,

Report to Congress on Competition in Wholesale

and Retail Markets for Electric Energy (2007) ...6

Fabio Caiazzo, et al., Air Pollution and

Early Deaths in the U.S.,

79 Atmospheric Env't 198 (2013) .....................04. 8

FERC, Energy Primer (July 2012) .........0.....ccccccceeeeee 5

Doug Hurley, Paul Peterson & Melissa Whited,

Demand Response as a Power System

RE i cscccttsnsctenssotaiicensiciiaeaman 6, 9, 12

National Research Council, et al.,

Hidden Costs of Energy (2010) ................0000..2.000. i)

U.S. Dep’t of Energy, National Transmission

COaBs TR Gy DD bvcinscncecestscitncrsssinsceviennnnnisiia 8

Statement of Interest’

As described more fully in the Appendix, amici

are state consumer advocates’ offices, national and

regional public health and_ environmental

organizations, and a nonprofit organization

representing the interests of individual and small-

business electricity rate-payers.

Amici, notwithstanding their diverse perspectives

and organizational missions, recognize the large

benefits of demand response participation in

wholesale energy markets; the critically important

role such resources can play in ensuring that the

Nation's electric power system is affordable, reliable,

and sustainable; and the importance of removing the

formidable market and institutional barriers that

Order 745 was designed to address. Accordingly,

amici are deeply concerned by the destabilizing

decision of the D.C. Circuit, its many serious adverse

consequences, and its potential to subvert the rational

development of law and policy in this area.

Reasons for Granting the Petitions

Under a proper interpretation of the Federal

Power Act, FERC Order 745 poses no “jurisdictional

quandary.” Pet. App. 1la.! Its “[subject] matter,” see

16 U.S.C. § 824(a}—compensation that system

* Pursuant to Rule 37.6, counsel certifies that this brief was

not authored in whole or in part by counsel for any party and

that no person or entity other than amici or counsel made a

monetary contribution to its preparation or submission. Counsel

for all parties received timely notice, pursuant to Rule 37.2(a), of

amici’s intent to file this brief and have consented to its filing.

1 Citations to “Pet. App.” refer to the appendix to the

petition in No. 14-840.

operators, FERC-regulated “public utilities,” owe

demand response resources that participate (with

state regulators’ permission) in the FERC-regulated

day-ahead and real-time markets that determine

wholesale energy prices—is well within the agency’s

congressionally conferred authority to _ police

“practices” that “affect” wholesale rates. Id. § 824d.

That, under governing precedent, should be “the end

of the matter.” See City of Arlington v. FCC, 133 S. Ct.

1863, 1875 (2013) (citing Chevron U.S.A. Inc. v.

Natural Resources Defense Council, Inc., 467 U.S.

837, 842 (1984)).

The decision of the divided D.C. Circuit below

took a remarkably different course. It set aside Order

745 as “ultra vires,” reasoning that “demand

response,” as an undifferentiated subject, “simply”

belongs to “the retail market,” Pet. App. 11a, 17a and

therefore is a “matter[]” the FPA reserves exclusively

for state, not FERC, regulation. Jd. 8a (quoting 16

U.S.C. § 824(a)).

That decision warrants review. Its legal ruling is

irreconcilable with this Court’s precedents; it disrupts

widely-settled understandings of the allocation of

regulatory authority over the Nation’s electric power

system; and it defies Congress’s recent and specific

directive that demand =fresponse resources’

participation in the wholesale energy markets to

which Order 745 applies should be encouraged.

FERC’s understanding of state and federal

regulatory authority, with the former generally

deciding whether demand response _ resources

participate in wholesale energy markets and FERC

addressing how system operators treat those

participants, is an eminently sensible one, endorsed

uniformly by the state regulators who were parties

below. (In contrast, the court’s theory of exclusive

state regulation was advanced only by the generator

interests challenging the Order).

The adverse practical consequences of the court’s

ruling are far-reaching. The D.C. Circuit’s decision

appears to deny FERC’s authority to pursue

measures it has long recognized as “essential to the

success of competitive wholesale markets,” New

England Power Pool and ISO New England, Inc., 101

FERC § 61,344, at P 46 (2002), and jeopardizes a wide

array of benefits—for the Nation’s consumers, and the

health of its citizens and the environment—that

derive, as Congress recognized, from demand

response participation in wholesale markets. To the

extent the court below assumed (in disagreement

with the expert agency) that such benefits would

withstand its decision ostensibly “returning” demand

response to the “retail market,” it is seriously

mistaken.

These harms are magnified, as is the need for the

Court’s intervention, by the character of the decision

below and the context in which it operates. Although

the court was emphatic that FERC lacks authority

under the statute to specify compensation for demand

resources in wholesale energy markets, its opinion did

not articulate even the basic contours of the regime

the court understood the FPA to require. This failure

to go beyond the “simpl[e]” proposition that “demand

response is ... part of the retail market,” Pet. App.

lla, has already introduced unwarranted,

destabilizing uncertainty in markets far beyond those

governed by Order 745.

Accordingly, amici agree that it is “imperative,”

FERC Pet. 36, that the decision not be permitted to

stand.

I. The D.C. Circuit’s Decision Jeopardizes, For

No Statutory Reason, Important Benefits of

Demand Response Participation in

Wholesale Markets

The decision below approached the issue as if it

were an exercise in formal logic, but the Order it set

aside bristles with real-world significance. Order 745

addresses fundamental problems in the wholesale

energy markets FERC oversees, with significant

implications for the efficiency and reliability of the

Nation’s electric power system, as well as large cost

savings for consumers and vitally necessary public

health and environmental benefits. To the extent the

opinion assumes these benefits would not be

jeopardized by evicting demand response from

wholesale energy markets, it is incorrect.

A. Demand Response Now Plays a Central Role

in the Electric Power System and Secures

Important Benefits to the Public

Order 745 and its predecessors represent an

important part of FERC’s broader effort to “break

down regulatory and economic barriers that hinder a

free market in wholesale electricity,” Morgan Stanley

Capital Grp. Inc. v. Pub. Util. Dist. No. 1, 554 U.S.

527, 536 (2008), one consonant with FERC’s enabling

authority and with Congress’s injunction, in the

Energy Policy Act of 2005 (“EPAct”), that

“unnecessary barriers to demand response

participation in energy, capacity and ancillary service

markets shall be eliminated.” Pub. L. No. 109-58, §

1252(f), 16 U.S.C. § 2642 note.

Order 745 addresses basic characteristics of the

electric grid that prevent day-ahead and real-time

wholesale energy markets from achieving

economically efficient outcomes:? (1) the current

challenges in achieving large-scale electricity storage

require that generation generally be

contemporaneous with use; and (2) the fact that

electricity demand is variable, characterized by

peaks, e.g., “a summer afternoon in Washington, D.C.

when countless air conditioners toil against the

humidity and heat.” Pet. App. 23a. Thus, “generating

plants, transmission, and distribution lines ... must

be sized to meet the maximum amount [of electricity]

needed by consumers at any time, in all locations.”

FERC, Energy Primer at 2.

2 The “ancillary services” markets that Congress referred to

in the EPAct enable system operators to obtain certain services

critical to the real-time stability of the grid, including frequency

regulation and system balancing. “Capacity markets” are also

distinct from the energy markets Order 745 regulates. Their role

is to generate investment-inducing price signals in areas facing

potential future shortfalls. Participants do not buy energy, but

rather fulfill ISO-imposed future capacity quotas, essentially by

purchasing options entitling them to obtain energy (or demand

reductions) should the future need arise. See generally

Connecticut Dep't of Pub. Util. Control v. FERC, 569 F.3d 477

(D.C. Cir. 2009).

Demand response resources participate actively in these

other markets as well, generating important system reliability,

economic, and public health benefits distinct from those achieved

through energy market participation. As is explained below,

although capacity markets are not governed by Order 745, they

are suffering adverse effects from the instability the decision has

generated. See pp. 22-24, infra.

When competitive wholesale energy markets

were first established, system operators relied solely

on increasing generation supply to balance the

market. See Doug Hurley, et al., Demand Response

as a Power System Resource 13 (2013) (“Hurley”). As

demand rose, increasingly costly and inefficient

sources would clear the market, including “peaking”

units, whose output is deployed for only a few high-

demand hours a year.

A prominent defect of that supply-side approach

is that when demand is extremely high (and/or when

resources fail unexpectedly or powerful market

participants engage in strategic or abusive behavior),

the wholesale price can skyrocket. In one extreme

example, wholesale prices in California, which had

been in the range of $27 per megawatt hour in May

2000, spiked to $450 per megawatt hour eight months

later. See Electric Energy Market Competition Task

Force, Report to Congress on Competition in

Wholesale and Retail Markets for Electric Energy 28

(2007).

Demand response participation in these markets

can help ameliorate this market failure and advance

FERC’s_ statutory responsibility for ensuring

nondiscriminatory, just, and reasonable wholesale

rates. When demand response resources—large users

or aggregators—participate in wholesale energy

markets, bidding specific, binding use reductions into

day-ahead or real-time auctions, they “flatten ... the

load profile” and “reduce the need to construct and use

more costly resources during periods of high demand.”

Order 719-A, 128 FERC 4 61,059, at P 47 (2009).

Even small reductions in demand result in

significant price effects, both because the supply

curve slopes upward steeply, i.e., energy from peak

generators is so much more inefficient and expensive,

and also because reductions in demand can ease

costly transmission congestion. Evidence established

that “a modest three percent load reduction in the 100

highest peak hours corresponds to a [wholesale] price

decline of six to 12 percent.” Pet. App. 60a n.15. As

FERC recognized, even when demand resources do

not bid successfully, their presence in energy markets

has a salutary effect, by raising the risk to suppliers

of pursuing high-price bidding strategies. Id. 190a.

The cost savings to consumers from demand response

participation in these markets are large, running into

the hundreds of millions, likely billions, of dollars.

See, eg., Brattle Group, Quantifying Demand

Response Benefits in PJM 32 (2007) (finding that 3%

load reduction in that one system’s 100 “super-peak”

hours translated to up to $202 million in annual cost

savings).

Demend response participation in wholesale

energy markets further benefits consumers by

increasing the operational efficiency, stability, and

reliability of the grid. Demand-side resource

participation, by reducing the amount of power that

3 As FERC explains, see Pet. 9-10, Order 745 is the most

recent in a series of Orders addressing demand response

participation in wholesale energy markets. It seeks to remedy

unpredictable and discriminatory compensation practices that

prevent those markets from realizing the rate reduction benefits

demand resource participation can bring.

must be transmitted, helps operators better manage

the grid and diminish the risk of forced power plant

outages and _ full-scale blackouts. And _ in

transmission-constrained areas, where it can be

literally impossible to add additional energy at peak

times, demand response is uniquely able to prevent

interruptions. See U.S. Dep’t of Energy, National

Transmission Grid Study 41 (May 2002).

These economic efficiency and system reliability

benefits were the impetus for Order 745 and its

predecessors. But demand resource participation

provides much broader social benefits. Demand

response that clears wholesale energy markets

frequently results in reduced electricity consumption

overall (users who make dispatchable commitments

through aggregators, to turn down air conditioning or

water heaters during peak periods, rarely run those

more at non-peak times), which itself reduces power

plants’ emissions of air pollutants and attendant

public health harms. See Fabio Caiazzo, et al., Air

Pollution and Early Deaths in the U.S., 79

Atmospheric Envt 198, 202 (2013). Reductions

during summer peaks are especially important,

because concentrations of harmful pollutants such as

smog (or ground level ozone) are particularly high

then. See American Lung Ass’n, State of the Air 30

(2014).

But even when demand response consists of time-

shifting, e.g., industrial users’ rescheduling

production to night-time hours, the public health

benefits are large. Generation sources that provide

marginal supply are not only economically inefficient;

they are often among the oldest and most polluting in

the fleet. Avoiding resort to the 10% most-polluting

natural gas-fired power plants avoids millions of

metric tons of annual greenhouse gas emissions, plus

large quantities of nitrogen oxides and sulfur dioxide.

See National Research Council, et al., Hidden Costs of

Energy 8, 119-23 (2010).4 Indeed, because peaking

plants are frequently built near major population

centers, the air pollutants they discharge do

disproportionate harm to human health. /d. at 121.

Demand response participation in wholesale

energy markets also will facilitate greater integration

of renewable generating sources. Such sources are

clean and produce inexpensive power, but their

output is variable. Demand-side resources enable

system operators to reduce load at times when those

sources are not generating—and can also ensure their

output is absorbed at times, such as with wind power

generators overnight, when system oversupply is a

concern. See Hurley at 13-14.

B. These Critically Important Benefits Are

Distinct to Demand Response Participation

in FERC-Regulated Wholesale Energy

Markets and Are Jeopardized By the Ruling

Below

Although emphatic in holding that FERC may not

regulate the terms of wholesale energy market

demand response compensation, the decision below is

4 As is true with respect to operating efficiency, “not all

power plants are created equal” in their health and

environmental impacts. Pet. App. 22a (Edwards, J., dissenting).

For example, the National Academy of Sciences determined that

the most polluting 5% of natural gas-fired power plants emit

approximately 550 times as much harmful pollution per kilowatt

hour of electricity generated as the cleanest 5%. Hidden Costs at

122-23.

critically ambiguous about the basics of the regime it

understood the FPA to require. At points, the court

suggested that the “importan[t]” benefits of demand

resource participation could continue, either subject

to state regulatory jurisdiction or no regulation at all,

see Pet. App. 14a (but see infra, pp. 18-19).

Elsewhere, however, the majority opinion appeared to

take the view that demand response belongs

exclusively in “the retail market,” calling FERC’s

distinction between retail- and wholesale-market

demand response “a fiction” and suggesting that

Order 745 improperly “lure[d]” demand resources

from their rightful place. Pet. App. 6a, 8a, lla.

The skepticism the opinion evinces about Order

745 (and seemingly about demand response itself) is

unwarranted—and misunderstands basic market

realities. Demand response is not, as the court

assumed, a single undifferentiated product, whose

value would be unaffected by (ostensibly) “returning”

it to the single place (“the retail market”) where, in

the court’s view, it belongs. Rather, as Order 745

recognizes, and Congress affirmed, the just-described

economic and broader societal benefits of demand

response derive significantly from participation,

subject to FERC-regulation, in wholesale energy

markets. Those benefits will be lost were the decision

to stand.

There is nothing “fiction{al],” Pet App. 6a, about

what demand response resources offer, nor is it

correct that they “participate’ only by declining to

act,” id. (emphasis added). Demand response

providers are technologically advanced businesses,

subject to most of the same ISO requirements as other

auction participants. They participate by submitting

10

legally binding, verifiable, and _ specific use

reductions, which can lower market-clearing prices.

The aspersions cast on FERC’s regulation are

similarly unwarranted. FERC was early to grasp the

important role demand resources could play in its

emerging, competitive-market-focused regulatory

framework, but the notion that FERC “lure[d]”

demand response resources “into the wholesale

market ... to create jurisdiction,” Pet. App. 8a, is

insupportable. Wholesale demand response

programs pre-dated Order 745 by nearly a decade.

See id. 61a-63a. System operators continue to have

their own reasons—including curbing opportunistic

bidding and improving reliability—for encouraging

demand response participation. And under Order 745

(as with its precursors), demand _ response

participation in wholesale energy auctions depends

on state regulators’ permission. See 18 C.F.R.

§ 35.28(g)(3) (aii).

To be sure FERC, through Order 745, sought to

increase demand resources’ participation in wholesale

energy markets, to improve their efficiency. But the

suggestion of agency aggrandizement, i.e., that FERC

acted in order “to create jurisdiction” over demand

response, blinks reality. The Order does not regulate

demand response resources; it regulates the treatment

of those entities (whether longstanding participants

in energy markets or new arrivals) by system

operators and other market participants indisputably

subject to FERC jurisdiction.

Nor was the opinion correct that FERC’s

recognition of a distinction between retail- and

wholesale-market demand response was the agency’s

“own construction.” Pet. App. 6a. On the contrary,

11

scholars and everyday market participants

understand that “demand response is not a

homogenous resource; it is provided by a highly

diverse set of actors in numerous different ways, and

with varying capabilities.” Hurley at 14. Compare

also id. (warning against “any simple

characterization of demand response types”) with Pet.

App. lla (“Demand response—simply put—is part of

the retail market.”).

In particular, the price-responsive demand

response programs that predominate in retail

markets are “generally not considered ‘firm’

resources, because they are not known to grid

operators or “dispatchable,” Hurley at 15, meaning

that system-wide decisions cannot be made, as they

are in energy markets, based on legally-binding

specific reductions. And FERC’s Order reflects

another “key distinction” between retail-level and

“fully-integrated [wholesale] demand response”: the

latter has a “much larger price impact,” because it can

“set the market clearing price.” Jd. at 16.

Participation in the broader, multistate energy

markets administered by ISOs also enables resources

to be “compensated for the full system value of their

demand reduction,” id. at 19, and “wholesale

markets|} creatie] ... opportunities for entrepreneurs

to find innovative means to supply demand response,”

thereby widening “the pool of potential participants.”

Id. at 21.

These realities contradict the highly stylized

account in the opinion below, where FERC wrongly

“lure|s]” “demand response” from its proper place.

There is, in practice, no such zero-sum jurisdictional

competition. Precisely because technological and

12

business innovations developed through wholesale

market participation are deployed in othér settings,

state public utilities commissioners explained to

FERC that eliminating “demand response[’s ability]

to participate in the wholesale energy market would

. adversely affect the viability of retail price-

responsive demand programs.” Letter of New

England Conf. Pub. Utilities Comm’rs, FERC Docket

No. RM10-17, 2-3 (July 1, 2014) (emphasis added).

II. This Court’s Review Is Needed to Correct

The D.C. Circuit’s Important, Erroneous,

and Practically Untenable Understanding of

the Statute’s Allocation of Regulatory

Authority

Although ostensibly applying “unambiguous|]”

statutory provisions to “simpl{e]” realities, Pet. App.

lla, 14a, the court below advanced a novel and

idiosyncratic understanding of federal and state

regulatory authority under the FPA, one that is

disputed by federal and state regulators alike,

unsupported by the statute, irreconcilable with this

Court’s decisions addressing the subject, and, with

regard to the “precise” subject matter of demand

response participation in wholesale energy markets,

contrary to Congress’s expressed intent. See Chevron,

467 U.S. at 842.

A. The Federal Power Act Does Not Permit, Let

Alone Require, The D.C. Circuit’s

Interpretation

Although the decision below repeatedly appealed

to the “statutory scheme as a whole,” Pet. App. 9a n.1,

the court did not dispute that the matters Order 745

addresses fall within the plain terms of Congress’s

13

grant to FERC of authority over practices that

“affect[]” wholesale rates. 16 U.S.C. § 824d(a). Nor

did the court conclude that the transactions Order

745 regulates are “sales of electric energy” governed

by the bright-line assignment of regulatory authority

in Section 201(b). See Pet. App. 9a n.1; id. 6a

(recognizing that it “is not a wholesale sale of

electricity; in fact it is not a sale at all”).®

Instead, the majority opinion anchored its ruling

on the conclusion that “demand response,” as a

category, is “part of the retail market,” Pet. App.

1 la—and on that basis is “unambiguously” covered by

the declaration in Section 201(a) of the FPA, that

FERC’s authority does not extend to “matters subject

to regulation by the States.” 16 U.S.C. § 824(a).

It is not plausible that Congress, by using those

words, spoke “directly ... to the precise question” of

FERC’s jurisdiction over compensation of demand

response resources that clear wholesale energy

5 In the court below, respondents argued that Order 745, by

incree»ag the “opportunity cost” of purchasing electricity, is

indistinguishable from a FERC-imposed retail rate. Pet. Reh.

Opp. 5-6. But this only shows why such concepts cannot control

legal and regulatory questions: It would be uncommon to

describe a property developer's offer to purchase a parcel of land

on which a power plant sits as having “increased the cost” of

generating electricity, and not even an economist would describe

that as “direct regulation”"—any more than a reduction in the

price of Hershey bars would be said to “regulate” the price of

M&Ms.

That respondents’ position (and the majority opinion)

depend so heavily on such loose analogies (and equally gossamer

distinctions between “direct[] incentivies}” and indirect ones,

Pet. App. 10a n.2), is at the very least a sign of having crossed

the border into areas in which agency deference is required.

14

market auctions, expressing an “unambiguous intent”

to deny FERC such authority. Arlington, 133 S. Ct.

at 1868 (quoting Chevron). Even if Section 201(a)

does more than “mere[ly|” “prefa[ce}” the other Act

provisions that allocate regulatory authority, New

York v. FERC, 535 U.S. 1, 22 (2002), the “matter”

regulated under Order 745—compensation owed

demand response participants in ISO-administered

energy auctions—is, like the “unbundled interstate

transmissions” held subject to FERC jurisdiction in

New York, “a recent development,” one that has

“never been ‘subject to regulation by the States.” Jd.

at 21 (quoting Section 201(a)); see id. (“{I]n 1935,

there was neither state nor federal regulation of what

did not exist”).

Indeed, FERC has regulated demand response

resources participation in organized wholesale

markets essentially from the beginning. See Pet.

App. 61a-63a & n.27. Moreover, while this Court in

New York identified the “matter” for Section 201(a)

purposes with specificity, the D.C. Circuit here

applied that term at the highest possible level of

generality, concluding that “demand response” is

“part of the retail market,” and that “market,” as a

whole, is beyond federal reach. Cf. New York, 535

U.S. at 16-17 (recognizing that “the landscape of the

electric industry has changed since the enactment of

the FPA, when the electricity universe was ‘neatly

divided into spheres of retail versus wholesale sales”

(quoting appeals court decision) and rejecting

contention that “the jurisdictional line between the

States and FERC falls between the wholesale and

retail markets’).

15

As petitioners explain, this Court’s numerous

decisions interpreting the jurisdictional provisions of

the FPA (and their Natural Gas Act analogues)

foreclose the sort of broad and categorical bar to

federal action—essentially a rule of reverse field

preemption—that the decision below located in

Section 201(a). In Mississippi Power & Light Co. v.

Moore, 487 U.S. 354 (1988), for example, the Court

held the State could not take regulatory actions in

“exercise [of] its undoubted jurisdiction over retail

sales” when doing so would interfere with FERC’s

power to regulate practices “affecting [wholesale]

rates.” Id. at 372. See generally EnerNOC Pet. 26-27

(discussing other cases).

Order 745, in contrast, not only leaves intact

States’ authority to regulate retail-sector demand

response, it does not supplant the only authority state

regulators reasonably could exercise with respect to

demand response involvement in the wholesale

market: the power to preclude entities under their

jurisdiction from participating. Section 201(a)

assuredly does not “speak to the precise question,”

Arlington, 133 S. Ct. at 1879, of regulatory authority

over demand response participation in wholesale

markets, let alone resolve that issue in favor of state

jurisdiction. But even if it did, Order 745 would still

be within statutory bounds. It addresses how FERC-

regulated ISOs treat demand response participants in

wholesale markets, but leaves to the States the

“matter” of whether resources may participate in the

first place. See 18 C.F.R. § 35.28(g)(3)(iii).

Everything about Order 745 is consistent with an

agency's lawfully exercising its authority to address

practices with a “direct and substantial effect” on

rates under its jurisdiction, Pet. App. 198a—which it

16

does by imposing obligations on regulated parties, to

treat non-jurisdictional participants in a

nondiscriminatory manner. And nothing about the

Order’s operation is consistent with an agency's

seeking to encroach on state legal or policy

prerogatives. ®

Indeed, the D.C. Circuit’s decision, while couched

in the vocabulary of federalism and of permitting “the

States ... to do their own thing,” Arlington, 133 S. Ct.

at 1873, actually deprives States of both policy

discretion and concrete benefits that enable them to

pursue their preferred energy programs. See supra,

p. 13. Under Order 745, a State’s decision to permit

entities within its jurisdiction to participate or not in

organized wholesale energy markets i= respected; the

D.C. Circuit’s ruling makes that decision for the

State, imposing the option that few States would

choose for themselves.

The conclusion that Congress “unambiguously,”

Pet. App. 14a, assigned demand response to the

“retail market” is especially remarkable in view of

Congress’s enactment of the EPAct, a statute that

was a significant impetus for FERC’s Order, which

6 Judge Edwards (Pet. App. 35a) accurately restated the

Order's operative effect:

All Order 745 says is that if a State’s laws permit

demand response to be bid into electricity markets, and if a

demand response resource affirmatively decides to

participate in an [SO’s or RTO’s wholesale electricity

market, and if that demand response resource would in a

particular circumstance allow the ISO or RTO to balance

wholesale supply and demand, and if paying that demand

resource would be a net benefit to the system, then the ISO

or RTO must pay that resource the LMP.

17

does speak to the specific question the court below

decided, announcing elimination of “unnecessary

barriers to demand response participation in

[wholesale] energy, capacity and ancillary service

markets” to be the Nation’s “policy.” 16 U.S.C. § 2642

note (emphasis added). Neither reading this

statutory language “in tandem,” see Pet. App. 13a,

with adjacent provisions nor doing so in light of its

title, id., changes its plain import: that demand

response participation in wholesale markets

regulated by FERC is not only “importan|t],” id. 14a,

but lawful.

B. The Decision Does Not Adopt a Legally

Permissible or Even Coherent Resolution of

the Regulatory Jurisdiction Issue

In fact, the labors of the court below to reconcile

that EPAct provision with the rest of its opinion only

makes clear why Order 745 reflects the best and likely

the only permissible understanding of FERC’s

authority under the FPA. The majority posited that

“Congress understood the importance of demand

response resources” in wholesale markets, but then

“left regulation ... up to the states, rather than to the

federal government.” Pet. App. 14a. But it would be

illogical for Congress to “encourage” “participation,”

in price-setting markets administered by FERC-

regulated “public utilities” pursuant to FERC-

approved tariffs, but then require exclusive state

regulation of those transactions. And, absent a

drastic revision of the FPA, that odd scheme would

surely be unlawful. There can be no serious claim

that, under the statute, States have authority to

regulate any of the matters Order 745 actually

addresses, e.g., to ensure that [SOs compensate

18

participants in wholesale energy auctions adequately

or that purchasers in those markets cover those costs.

Thus, if the EPAct’s express policy choice—

expanded wholesale-market demand response

participation—is respected, along with the basic

mandate of the FPA (no state regulation of wholesale

markets), the D.C. Circuit’s understanding could be

sustained only if Congress meant to assign regulatory

authority over these critically important matters, to

no one. But precedent, as well as common sense,

“ijmpel|[s]” rejection of that conclusion:

Although federal jurisdiction was not to be

exclusive, [federal] regulation was to be broadly

complementary to that reserved to the States, so

that there would be no “gaps” for private interests

to subvert the public welfare. This congressional

blueprint has guided judicial interpretation of the

broad language defining FPC jurisdiction, and

when a dispute arises over whether a given

transaction is within the scope of federal or state

regulatory authority, we are not inclined to

approach the problem negatively, thus raising the

possibility that a “no man’s land” will be created.

That is to say, in a borderline case where

congressional authority is not explicit we must

ask whether state authority can practicably

regulate a given area and, if we find that it

cannot, then we are impelled to decide that

federal authority governs.

19

Fed. Power Comm'n v. Louisiana Power & Light Co.,

406 U.S. 621, 631 (1972) (quotation and citations

omitted).7

Ill. This Court’s Review Is Needed to Prevent

the D.C. Circuit’s Erroneous Decision From

Destabilizing Important Markets Outside

Order 745’s Domain

On its own terms, the seriously mistaken and

highly significant decision of the D.C. Circuit plainly

warrants this Court’s review.

Indeed, review would be warranted even if the

opinion’s “general expressions ... [are] taken in light

of the particular facts giving rise to them, see Zenith

Radio Corp. v. United States, 437 U.S. 443, 62 (1978)

(quoting Cohens v. Virginia, 19 U.S. 264 (1821)), and

the decision is read as affirming demand response

participation in wholesale energy markets and

holding “only” that the FPA forbids FERC from

regulating compensation in those markets (or setting

compensation rules with the aim of “luring”

participants from the “retail market,” but see p. 11,

supra). The court’s ruling would still deny FERC

authority “essential to ... fulfilling its statutory

responsibility to ensure that jurisdictional rates are

just and reasonable,” Pet. App. 188a, and open a

’ Having reached this logical dead end, the majority opinion

added assertions that FERC’s understanding is “unreasonable

for the same reasons,” it was (held) impermissible, Pet. App. 14a,

and “alternatively,” that Order 745 should be set aside based on

the claimed insufficiency of FERC’s response to Commissioner

Moeller’s dissent on the compensation issue, id. 15a-17a. These

offhand assertions are also erroneous and do not in any way limit

the significance of the court’s broad rule of decision or mitigate

its practical effects.

20

strange void, where demand response resources,

alone among participants in interstate’ wholesale

energy auctions, must deal with [SOs or purchasers

without federal regulatory oversight and protection.

See supra, pp. 19-20.

The direct practical effects of permitting that

statutorily unwarranted rule to stand would be

severe. Wholesale energy markets will not ““function{]

effectively’: Competition will be constrained; prices

will be higher;” EnerNOC Pet. 29, and the important

public health benefits from reducing reliance on dirty

and inefficient generators will be lost. (Indeed, that

will occur whether the decision is understood as

directly requiring that demand response resources

exit wholesale energy markets or as permitting them

somehow to remain, in a regulatory “no man’s land.”).

And because demand response participation in

FERC-regulated wholesale energy markets has

important positive “spillover” effects, a clearly-stated

rule barring such participation would have further

adverse effects. As state utility regulators have

explained, ousting demand response from wholesale

energy markets would jeopardize “the viability of

retail price-responsive demand programs,” New

England. Comm’rs Ltr., supra, at 2-3 (emphasis

added), the very programs the decision ostensibly

undertook to protect against federal] incursion.

But the opinion below made no effort to articulate

the metes and bounds of its rule. As a result, the

decision is having serious, destabilizing effects on

markets and programs that were outside the scope of

Order 745 and not before the court below.

2]

In particular, the day the decision issued,

generator interests launched an aggressive campaign

to eliminate demand response participation from

system operators’ legally and economically distinct

capacity markets. Brandishing the _ court’s

statements that “[d]emand response ... is part of the

retail market,” Pet. App. lla, and that the FPA

“restricts FERC from regulating the retail market,”

id. 14a, power plant owners filed “emergency”

complaints with FERC, demanding that [SOs jettison

previously approved rules governing upcoming

auctions, re-bid previously conducted ones, void

contracts, and award damages. See Complaint,

FirstEnergy Serv. Co. v. PJM Interconnection, LLC,

FERC Docket No. EL14-55-0000 (filed May 23, 2014);

Complaint, New England Power Generators Ass'n v.

ISO New England, Inc., FERC Docket No. EL15-21-

00 (filed Nov. 14, 2014).

These will fail on their merits. The opinion below,

as opaque as it is, does not bear the reading these

complaints seek to impose. (It is doubtful that the

court lawfully could have announced such a sweeping

rule).8 But neither that nor the fact (in respondents’

8 It would be extraordinary to read the broadest language in

the opinion below as deciding the lawfulness of behavior or

FERC regulatory authority in markets not before the court,

especially given the opinion’s express acknowledgment of the

“importance” of demand response in these markets. And binding

D.C. Circuit precedent, including a decision that post-dated the

one below, has sustained FERC regulation of capacity markets,

affirmatively highlighting the central role demand response

resources play in those markets. See New England Power

Generators Ass'n. v. FERC, 757 F.3d 283, 290-91 (D.C. Cir.

2014); Connecticut Dep't Pub. Util. Control, 569 F.3d at 482.

Finally, although the ruling below is seriously mistaken in its

interpretation of Section 201(a), the features of Order 745’s

22

careful formulation) that the “precedential effects of

the Court’s decision as it may relate to capacity

markets ... will have to be resolved in future cases,”

C.A. Stay Opp. 7, means that these efforts to export

the decision’s destabilizing power will not bear fruit.

On the contrary, these markets—a complex and

densely interconnected sector of the economy,

dependent on large capital investments, where

system reliability and resource adequacy are of

paramount importance—are uniquely susceptible to

this sort of disruption. Their participants have

understandably little tolerance for legal uncertainty

or threats of protracted litigation demanding far-

ranging retroactive “relief.” See United Gas Pipe Line

Co. v. Mobile Gas Service Corp., 350 U.S. 332, 344

(1956) (“[T]he stability of supply arrangements ... is

essential to the health of the [energy] industry.”);

NRG Power Marketing, LLC v. Maine Pub. Util.

Comm'n, 558 U.S. 165, 174 (2010) (“Competitive

power markets simply cannot attract the capital

needed to build adequate generating infrastructure

without regulatory certainty....”) (quoting FERC

Order).

Thus, the same week petitions for certiorari were

filed here, PJM submitted to FERC a 954-page

proposed “stopgap” tariff revision, PJM

Interconnection, LLC, ER15-852-000 (Jan. 14, 2015),

to take effect in the event certiorari is not granted.

That submission, referencing the need to “mitigate

the uncertainty raised by EPSA,” id. at 39, proposed

to roll back demand response participation in PJM’s

energy market regulation that appeared to most trouble the

majority below have no direct application to capacity markets or

FERC’s regulation of them.

23

capacity markets, highlighting a long list of effects

attributed to the D.C. Circuit’s decision, including:

“considerable uncertainty hanging over

...commitments” for an impending auction; the risk

that demand response participation in future

auctions would be “significantly chill[ed]”; and the

possibility of “re-running” auctions and of “ripple

effects on ... pricing and valuation of hedges and

derivatives.” Id. at 4, 8, 11, 40. The submission made

clear that only the need to avoid these disruptions had

led PJM to consider altering highly successful

programs that “PJM and its stakeholders have

devoted over eight years to developing.” Id. at 40.

PJM’s independent market monitor has

estimated, using sophisticated modeling techniques,

that removing demand response resources from one

recent PJM capacity auction would have led to some

nine billion dollars in higher rates for a single year.

See FERC Pet. 32.

That harms of this magnitude are resulting, not

from the ruling below, but rather from its failure to

articulate a “limiting principle” to its already

significant legal error, is further reason why this

Court’s review is needed.

CONCLUSION

The petitions for writs of certiorari should be

granted.

Respectfully submitted,

24

KRISTIN MUNSCH

CiTIZENS UTILITY BoarpD

309 W. Washington, Suite 800

Chicago, IL 60606

Counsel for Citizens Utility

Board

Reoina A. lor

DELAWARE DIVISION OF THE

PuBLiIc ADVOCATE

820 N. French Street, 6th Floor

Wilmington, DE 19801

Counsel for Delaware Division

of the Public Advocate

VICKIE L. PATTON

MICHAEL PANFIL

TomAs CARBONELL

PETER ZALZAL

ENVIRONMENTAL DEFENSE F'UND

2060 Broadway, Suite 300

Boulder, CO 80302

Counsel for Environmental

Defense Fund

Davip T. GOLDBERG

Counsel of Record

DoNAHUE & GoLpBERG, LLP

99 Hudson Street, 8th Floor

New York, NY 10013

(212) 334-8813

david@donahuegoldberg.com

Counsel for all Amici Curiae

GREGORY M. CUNNINGHAM

JERRY ELMER

CONSERVATION LAW FouNDATION

47 Portland Street, Suite 4

Portland, ME 04101

Counsel for Conservation Law

Foundation

SANDRA Mattavous-F RYE

OFFICE OF THE PEopLE’s CouNSEL

FOR THE DiIsTRICT OF COLUMBIA

1133 15th Street, NW, Suite 500

Washington, DC 20005

Counsel for Office of the People’s

Counsel for the District of

Columbia

PauLa M. CARMODY

THERESA V. CZARSKI

WILLIAM F. FIELDS

MARYLAND OFFICE OF PEOPLE’S

COUNSEL

6 Saint Paul Street, Suite 2102

Baltimore, MD 21202

Counsel for Maryland Office of

People’s Counsel

STEFANIE A. BRAND

New JERSEY Drvision or RATE

CouNSEL

140 East Front Street

4th Floor

Trenton, NJ 08625

Counsel for New Jersey

Division of the Rate Counsel

Casey A. RoBeRTS

SIERRA CLUB ENVIRONMENTAL

LAW PROGRAM

85 Second St., Second Floor

San Francisco, CA 94105

Counsel for Sierra Club

RoBERT J. KELTER

KAREN E. TORRENT

THE ENVIRONMENTAL LAW

AND Po.icy CENTER

500 New Jersey Ave, NW,

Suite 400

Washington, DC 20001

Counsel for Environmental

Law and Policy Center

JILL TAUBER

SARA GERSEN

E/ARTHJUSTICE

1625 Massachusetts Ave.,

NW, Suite 702

Washington, DC 20036

JOHN N. Moore

JENNIFER CHEN

NATURAL RESOURCES DEFENSE

CouNCIL

20 North Wacker Drive

Ste. 1600

Chicago, IL 60606

Counsel for Natural

Resources Defense Council

Davip T. Evrarp

PENNSYLVANIA OFFICE OF

CoNSUMER ADVOCATE

555 Walnut Street, 5th Floor

Harrisburg, PA 17101

Counsel for Pennsylvania Office

of Consumer Advocate

JACQUELINE LAKE RoBERTS

WEsT VIRGINIA CONSUMER

ADVOCATE DIVISION

723 Kanawha Blvd. East

Suite 700

Charleston, WV 25301

Counsel for West Virginia

Consumer Advocate Division

APPENDIX

DECRIPTION OF AMICI CURIAE

Citizens Utility Board (CUB) is a statutorily

created non-profit organization whose mission is to

represent the interests of residential and small

commercial utility customers in state and federal

regulatory and judicial proceedings. CUB is a

membership-funded organization with approximately

100,000 members across Illinois. CUB does not have

any parent companies, and no publicly-held company

has a 10 percent or greater ownership interest in

CUB. CUB does not issue stock.

Conservation Law Foundation (CLF) is a New

England non-profit, public-interest environmental

advocacy organization with offices and members in

the states of Maine, New Hampshire, Vermont,

Rhode Island and Massachusetts. A substantial

component of CLF’s work is directed at influencing

energy policy in order to ensure that the region

achieves its collective goals of reducing greenhouse

gas emissions and avoiding or limiting the impacts

of climate change. The role of demand-side resources,

including demand response, as an energy resource is

a central component of this work. CLF is a voting

NEPOOL governance participant. In that role, CLF

participates actively in the market-design initiatives

of ISO-NE, including advocacy for the inclusion of

demand response resources in the wholesale energy

markets. CLF was directly involved in the NEPOOL

stakeholder process associated with FERC’s Order

745 and was an intervenor and commenter in the

FERC review of ISO-NE’s Order 745 compliance

filing.

The Delaware Division of the Public

Advocate (“DE DPA”) represents residential and

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small commercial customers of regulated utilities in

the State of Delaware, which is within the PJM

Interconnection, LLC footprint. The Delaware Public

Service Commission has authorized its load serving

entities to implement demand response programs and

to offer that DR into the PJM wholesale energy

auctions. LSEs whose bids are selected in the

auctions use the proceeds that they receive from PJM

to pay participants in DR programs for reducing their

energy usage. The DE DPA represents the interests

of Delaware customers whose rates are directly

affected by the LSEs’ ability to bid DR into the PJM

auctions.

The Office of the People’s Counsel of the

District of Columbia (DC OPC) is an independent

agency of the District of Columbia government. DC

OPC is the statutory representative of District of

Columbia consumers in energy and public utility

proceedings before the District of Columbia Public

Service Commission, federal regulatory agencies, and

state and federal courts. D.C. Code § 34-804 (d)

(2010). DC OPC is authorized to investigate and

intervene in proceedings regarding the operation and

valuation of utility companies and energy service

providers on both the distribution and transmission

levels. DC OPC’s statutory mandate is to advocate for

the provision of quality utility service and equitable

treatment of all District consumers at rates that are

reasonable and just with full consideration of

conservation of natural resources and _ the

preservation of environmental quality.

Environmental Defense Fund (“EDF”) is a

national non-profit, non-governmental, non-partisan

organization, representing more than 300,000

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members and supporters. Since 1967, EDF has

worked to preserve the natural systems on which all

life depends. Guided by science and economics, we

find practical and lasting solutions to the most serious

environmental problems. EDF advocates policies

that protect human health and the environment and

that support a strong economy by ensuring that cost-

effective clean energy resources have open access to

our nation’s electricity markets. EDF participated as

amicus in support of FERC Order 745 in the case

below and participated in the underlying FERC

rulemaking.

The Environmental Law and Policy Center

of the Midwest (“ELPC”) is a not-for-profit public

interest environmental legal advocacy organization

that conducts strategic advocacy campaigns to

improve environmental quality and protect our

natural resources through the advancement of clean

air, clean transportation and clean energy policies at

the regional and national levels. ELPC promotes the

deployment of clean energy resources including

demand response.

The New Jersey Division of Rate Counsel

(“NJ Rate Counsel”) is the administrative agent

charged under New Jersey law with the general

protection of the interests of utility ratepayers.

N.J.S.A. 52:27E-50 et seq. The courts have recognized

that it is the ratepayers who ultimately shoulder the

cost of electricity. See Conn. Dep't of Pub. Util.

Control v. Fed. Energy Regulatory Comm'n, 569 F.3d

477, 479 (D.C. Cir. 2009). Cost is a significant concern

to ratepayers, as is reliability, both of which are at

stake here. Electricity is an essential need, and

without reliable service at just and reasonable rates,

A-3

ratepayers will be irreparably harmed. For this

reason, NJ Rate Counsel has a heightened interest in

the outcome of this matter.

The Maryland Office of People's Counsel

(“Md OPC”) represents the residential customer

interest in matters involving regulated utility service

in the State of Maryland, which is within the PJM

Interconnection, LLC (“PJM”) footprint. The

Maryland Public Service Commission has authorized

load serving entities (“LSEs”) in Maryland to

implement demand response (“DR”) programs and to

offer that DR into the PJM wholesale energy

auctions. Md OPC represents the interests of

Maryland customers whose rates are directly affected

by the LSEs’ ability to bid DR into the PJM auctions.

Natural Resources Defense Council (NRDC)

is a national nonprofit organization with

approximately 397,000 members. NRDC is committed

to the preservation and protection of the

environment, public health, and natural resources.

Addressing the climate change crisis is one of NRDC’s

top institutional priorities. As part of its work in this

arena and to curb air pollution, NRDC has been

actively involved in advocacy related to demand

response, energy efficiency, and renewable energy.

The Pennsylvania Office of Consumer

Advocate is the state office statutorily authorized to

represent the interests of consumers of public utility

services in matters before the Pennsylvania Public

Utility Commission, equivalent federal regulatory

agencies, and state and federal courts.

The Sierra Club is a national organization

founded in 1892 with more than 60 chapters and over

A-4

a million members and supporters. The Sierra Club’s

purpose is to explore, enjoy, and protect the wild

places of the earth; to practice and promote the

responsible use of the earth’s ecosystems and

resources; and to educate and enlist humanity to

protect and restore the quality of the natural and

human environments. Sierra Club works to address

the environmental and public health problems

associated with energy generation, and actively

advocates for demand-side management and

renewable energy resources.

The West Virginia Consumer Advocate

Division is the West Virginia statutory

representative of residential utility customers in state

and federal regulatory and judicial proceedings.

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