# Amicus Curiae Brief — Enernoc, Inc. v. Elec. Power Supply Ass'n, 135 S. Ct. 2049 (2015) (No. 14-841)

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0318%3A23

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2015

## Text

Suprems Gout US

Nos. 14-840 & 14-841 FIED
JUL 16 2015

IN THE
Supreme Court of the United ese | —eeceni

FEDERAL ENERGY REGULATORY COMMISSION,
Petitioner,

v.

ELECTRIC POWER SUPPLY ASSOCIATION, et ai.,
Respondents.

ENERNOC, INC. et al.,
Petitioners,
v.
ELECTRIC POWER SUPPLY ASSOCIATION, et ai.,

Respondents.

On Writs or CERTIORARI TO THE UNITED STATES
Court or APPEALS FOR THE D.C, Circuit

Brier Amici CuriAE tN SUPPORT OF PETITIONERS FOR
CONSERVATION Law FouNDATION, ENVIRONMENTAL
DEFENSE FuND, THE ENVIRONMENTAL LAW AND
Po.icy CENTER OF THE MipweEst, NATURAL
Resources DEFENSE COUNCIL AND SIERRA CLUB

Davip T. GOLDBERG

Counsel of Record
DoNnAHUE & GoLpserc, LLP
99 Hudson Street, 8th Floor
New York, New York 10013
(212) 334-8813
david@donahuegoldberg.com

Counsel for Amici Curiae

[Additional counsel listed on signature block] , s-ac of Corarx*

———————————————————— ee Ley
260559

TALE OF CONTENTS

I. Order 745 and its Predecessors Correctly
Recognize the Distinct Importance of
Demand Response Participation in Wholesale

SN ac a a

II. The Public Benefits of Wholesale Demand
Response Are Numerous, Extensive, and

Increasingly Important .....................ccceeeeeeeeeeeees

Ill. The Federal Power Act Does Not Prohibit,
and Congress Has Affirmatively Endorsed,
Demand Response Participation in

FERC-Regulated Wholesale Markets................

A. The Federal Power Act and This Court’s
Precedents Plainly Establish

FERC’s Regulatory Authority......................

B. Congress Has Expressly Endorsed
Demand Response Participation

in Wholesale Markets ......................0.cc.0eceeeeee

IV. FERC’s Understanding of the
Allocation of Regulatory Authority is
Reasonable and Judicious ......................0:0ce0eeeee0es

V. The D.C. Circuit’s Alternative Holding
| EEE ae aa

TABLE OF AUTHORITIES

Nicci ileal lhe ledesilcdeilitea ainsi Reali Page(s)
City of Arlington v. FCC,
is HI acciitcrioncsistsoncusanenasedneiiinecs 19, 20

Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984).............0...0.. 19, 20

Comcast Corp. v. FCC,
600 F.3d 642 (D.C. Cir. 2010)..........ccc ce eeceeeeee 23, 24

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

Se ae 12, 32
Delaware Dep’t Natural Res. v. EPA,

eR 16
Fed. Power Comm'n v. La.

Power & Light Co., 406 U.S. 621 (1972) ................ 27
Michigan v. EPA, 576 U.S. __ (June 29, 2015) ............ 33
Morrison v. Olson, 487 U.S. 654 (1988)............0.0..0...00. 29
New York v. FERC,

I tr ac iccsasctntiahienoniccingnenliiiniie 19, 20, 22, 23
NARUC v. FERC,

ee 30

NRG Power Marketing, LLC v. Maine Pub. Util.
eee 12

ill

Oneok, Inc. v. Learjet, Inc.,

135 S. Ct. 1591 (2015).....................

Phillips Petroleum Co. v. Wisconsin,

347 U.S. 672 (1964)..............00cceeeee

W. Va. Univ. Hosps., Inc. v. Casey,

SF is Ge Ci icicrcsccscsccnsssnsccosees

Statutory Provisions

Energy Policy Act of 2005,
Pub. L. No. 109-58,
16 U.S.C. § 2642 note

UI ia ccssisindedlancioessaibanle
| SRSA Aere On Reade
§ 1252(6)(3)(E) ......ceesscsesscsescssseessnvee
a as itleetaiinpaniiond
I Bs insets neestoccsnini
16 U.S.C. § BB4(e)......2...cnescnveescoessonseeeen
16 U.S.C. § CBA(C) ..n..casscnceccossccvsescosesen
16 U.S.C. § 824d(a).....ccscccescseessseeessseeeee

Be iicccicnicusennnensoandnidnnnnies

lv

GB UBT © BCU ccccccsnccivsscinccsncsenivenistitinnivediadiaigmeaiaal 18

GB WBA. © BPR Prcccsesessentessnasecenncenntininiiniamanin 18
GE EG © Be rccctvisssrccttististscrecteceniiassiaamaa 8,18
GB DA. F BAD cccctrrccetnccsccsssiinteciiiiiianmniiseniaiiniia 26
GB TI, BG cree nsccncccicsecsscsnnccscacisitninaimaniaaimataaae 8

Regulatory and Administrative Materials
0 C.F, 0 DU DIIIOD accctsnnsstnititsisemasmaneaies 10

U.S. Dep’t of Energy, National Electric Transmission
Congestion Study (Aug. 2009).................ccccceeeeeeeees 14

U.S. Dep’t of Energy, Benefits of Demand
Response in Electricity Markets
and Recommendations
for Achieving Them (2006) .................ccccccecseeseeeeeees 25

FERC Staff Report,
Assessment of Demand Response
and Advanced Metering (Aug. 2006) ............... 25, 29

FERC Staff Report AD13-7-000,
Centralized Capacity Market
Design Elements (Aug. 2013)...................::cccecceeeeee 12

Letter of New England Conf. Pub.
Utilities Comm’rs, FERC Docket
No. RM10-17 (July 1, 2014)......... 2. eeee cece ees 13

Ltr. of PJM to U.S. Dep’t Energy

Building Technologies Program
esd cretcrnceumannasenacent 17
Other Materials
American Lung Ass'n, State of the Air (2014) .......... 167

Fabio Caiazzo, et al., Air Pollution and
Early Deaths in the United States,
79 Atmospheric Env’t 198 (2013) ...............cccccccees 15

Peter Cappers, et al., Market and Policy
Barriers for Demand Response
Providing Ancillary Services in
U.S. Markets (March 2013).................ccccceeeeessceeeees 33

Jaquelin. Cochran, et al.
Market Evolution: Wholesale Electricity
Market Design for 21st Century
nT 10

Scott Hurvey, et al., Evaluation of the New York
Capacity Market (Mar. 2013)......................ccceceeeees 15

Doug Hurley, Paul Peterson & Melissa Whited,
Demand Response as a Power System
Ee 10, 11, 15

Monitoring Analytics, Analysis of the 2017/2018
RPM Base Residual Auction (2014) ......................... 7

National Academy of Engineering,
Greatest Engineering Achievements

of the Twentieth Century,

http://greatachievements.org) ...................c0c0ce++e0: 18
National! Research Council, et al.,

Hidden Costs of Energy (2010) ...................0.... 14, 15

Navigant, Carbon Dioxide Reductions
from Demand Response (Nov. 2014)..................... 17

Richard J. Pierce, A Primer on Demand Response
and A Critique of FERC Order 745,
3 Geo. Wash. J. Energy &

RN ee 31
Bo Shen, et al, Addressing Energy Demand

Through Demand Response:

International Experiences and Practices

EP EAR VE A ee ee ee ee 15

Julian L. Simon, The Airline Oversales Auction
Plan, J. Transp. Econ. & Policy 319 (1994).......... 17

Br. Amicus Curiae for EPSA,
Conn. Dept. Pub. Util. Control, C.A.D.C.,
No. 07-1375 (Sep. 2008)
(available at https://goo.gl/IsASvZ). .......... 11, 21, 30

Br. Opp., Nazarian v. PPL EnergyPlus LLC,
STE SED icosicninsresncresientsiiciineanitapattemnnapebiiashinbiiatihineesiiehieiecesibiaiy 27, 30

Statement of Interest”

Amici, leading nongovernmental organizations
committed to protecting public health and natural
resources, are described in the Addendum. We
participate here, as we did before the Commission and
the court below, because FERC Order 745 advances
important national energy policy goals — ensuring an
adequate, affordable, and reliable electric power
system -— in a manner that is consistent with
protecting public health and the environment.
Wholesale demand response makes markets more
efficient, saves consumers billions of dollars, and
renders the bulk power system more stable and
reliable. But it also avoids the need to build and
operate costly and polluting generating plants while
supporting the integration of cleaner and cheaper
energy resources into the increasingly dynamic and
interconnected power grid. Indeed, as Congress has
explicitly recognized, demand response resources play
an important part in the Nation’s rapidly advancing
transition to a modern, economical, and sustainable
energy system. Amici support this transition and the
role demand response plays.

Amici are deeply concerned by the D.C. Circuit’s
holding that federal law prohibits realization of these
benefits, on the theory that demand response is
inherently and exclusively a retail product that has
no place in FERC-regulated organized markets. As

* 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 have consented to its filing.

petitioners demonstrate, and as we elaborate below,
that theory rests on a basic misunderstanding of how
demand response participates in wholesale markets
and the unique and vital functions it serves. Amici
also actively support retail-level demand-response
programs. We believe, as do state regulators
themselves, that wholesale-level demand response
complements rather than threatens these state
initiatives.

We are further concerned about the implications
of the D.C. Circuit’s decision for the allocation of
energy regulation responsibility more generally. The
decision rejected FERC’s restrained and pragmatic
approach to fulfilling its statutory duty in favor of one
that defines “matters” at an implausibiy high level of
generality and then assigns them exclusively to either
State or federal regulators. That approach is contrary
to this Court’s precedent and unsupported by the
statute. It is especially ill-suited to the practical
realities of a rapidly transforming electric power
system.

Introduction and Summary of Argument

Order 745 is a lawful, appropriate and important
exercise of FERC’s responsibility under the Federal
Power Act to secure “just and reasonable” wholesale
rates. The Order addresses the compensation
practices of Regional Transmission Organizations
and Independent System Operators — FERC-
jurisdictional “public utilities” — in a manner that is
entirely consistent with the “scheme [of that statute]
as a whole,” Pet. App. 9a n.1, and with the
Commission’s longstanding effort to promote market
efficiency and open competition as a means of
discharging its core Federal Power Act

responsibilities. Order 745 and its precursors
addressing demand response implement federal
legislation expressly recognizing the benefits of
“participation of demand response” resources in
FERC-regulated wholesale markets and committing
the Nation to reducing barriers obstructing their
realization.

The benefits of demand response participation in
wholesale markets extend beyond the market
efficiency and operational performance imperatives
Order 745 addresses. Wholesale demand response
provides important public health and environmental
benefits, which are not accounted for in wholesale
market prices, by avoiding the need to operate plants
that are both dirty and costly; by postponing or
avoiding construction of power plants and
transmission lines; and by helping the grid to reliably
integrate inexpensive and clean renewable energy
resources.

Indeed, the diverse benefits and capabilities of
demand response are increasingly important, as the
Nation accelerates its transition to a flexible, dynamic
modern grid and as the power system makes fuller
and more efficient use of renewable energy resources.
Accordingly, Congress, far from relegating demand
response resources to the sidelines, has recognized
that these resources can and must play an important
role in the Nation’s energy future.

Without disputing that Order 745 addressed
market practices that directly affect wholesale rates
under FERC’s jurisdiction, the majority opinion below
nonetheless held Order 745 “ultra vires,” based on
what were presented as “simpl[e]” and self-evident
realities: that demand response (1) is intrinsically

“part of the retail market” and only that “market,”
and (2) is, on that basis, subject to regulation only by
States.

Neither proposition is tenable. Order 745’s
central premise — that demand response resources’
participation in wholesale markets is distinctly
beneficial — is one that Congress has explicitly
endorsed. There is nothing “metaphysical” about
wholesale demand response or how resources
participate in wholesale markets. Far from only
“declining to act,” demand response resources must
make investments and binding contractual
commitments, and they participate as a resource,
competing with others capable of providing
comparable market and system benefits. Indeed, the
basic misunderstandings animating the decision
below are especially consequential, as Congress has
enacted laws envisioning an integral place for
demand response resources in the Nation’s future
electricity landscape.

The statutory basis of the decision is equally
infirm. In any circumstances, the reference, in a
prefatory provision of the Federal Power Act, to
unspecified “matters subject to [state] regulation”
would fall vastly short of the “direct” and “precise”
expression of congressional intent that this Court’s
precedents would require to adjudge Order 745
unlawful. But here Congress has spoken. It has
affirmed, in statutory language respondents cannot
blunt or evade, the legitimacy and importance of
demand response “participation” in FERC-regulated
markets.

Order 745’s allocation of regulatory authority is
lawful and sensible. The Order recognizes the

benefits of both retail- and wholesale-level demand
response and assigns oversight responsibility
precisely as one would expect: FERC regulates
wholesale market compensation and cost allocation
practices that appear in ISO/RTO tariffs, while States
regulate retail-level activities. Indeed, Order 745 not
only leaves untouched States’ control of retail
programs, it respects their decisions to permit (or not)
residents’ wholesale market demand _ response
participation. Thus, while FERC properly rejected
the notion that Section 201(a) preempts its core
wholesale market responsibilities, Order 745 takes
account of the policies underlying that provision,
along with those animating the Section 205 and 206
grants of authority and Congress’s recently enacted
policy statements. FERC’s restrained approach to
jurisdiction is consonant with the Court’s precedent
and well suited to the realities of a bulk power system
and a regulatory landscape that are increasingly
complex and interconnected. And FERC’s regulation
accomplishes what the decision below fails to: it
describes a readily ascertainable jurisdictional line.

To the extent the substance of FERC’s exercise of
its authority is before the Court, Order 745 should be
upheld. The basic principles underlying Order 745
are not only those of FERC’s earlier demand response
orders, they are the familiar linchpins of the
Commission’s general competition-focused regulatory
approach: that markets should be organized to meet
particular system needs and structured to account for
real-world conditions; that auctions should be broadly
open to all resources that are capable of performing;
and that compensation should generally be based on
the market-clearing price, irrespective of successful
bidders’ costs or auction bids. Indeed, respondents

have highlighted these features in defending FERC-
regulated capacity markets in which they participate
(alongside demand response resources) and receive
compensation.

While demand response and generation resources
are not identically situated, they are comparable in
the respects most relevant to system operators. And
there are important ways that the former are more

valuable than generator competitors. In energy
markets under conditions of peak demand, demand

response resources reduce transmission congestion
that can threaten service; and generation resources
that clear the market (especially during peaks)
impose costs, in the form of health and environmental
harms, that market-clearing demand response
resources do not. Whatever the theoretical merit of
disputed claims that LMP is “overcompensation” that
could yield “too much” curtailment, the record before
FERC does not support such claims. And it is plain
that Congress, having repeatedly legislated to
broaden opportunities for demand _ response
participation, does not take that view.

ARGUMENT

I. Order 745 and its Predecessors Correctly
Recognize the Distinct Importance of Demand
Response Participation as Resources in Wholesale
Markets

Order 745 and FERC’s prior, related actions
respond to market problems that flow from
characteristics distinct to electricity as a commodity
and the bulk power system. In particular, the historic
approach to balancing supply and demand — building
facilities large enough to serve maximum load and

bringing increasingly costly generation sources online
to meet peaks — is inefficient and can yield intolerably
high wholesale prices. When demand response
resources participate in wholesale energy markets
and “flatten the ... load profile,” Pet. App. 60a, they
lower transmission congestion and make it more
likely that market-clearing auction prices will be just
and reasonable.

Similar benefits have been realized when ISOs
and RTOs have, with FERC approval, permitted
demand response participation in their capacity
markets, avoiding unnecessary and costly new plant
construction, and in their ancillary services markets,
where, inter alia, demand response resources perform
as reserves, serving a need that would otherwise be
met by maintaining generating plants idle or under-
used to respond to unexpected system events. These
benefits of wholesale market demand response have
proven to be dramatic and are largely uncontested.
See Pet. App. 156a (Commissioner Moeller);
Monitoring Analytics, Analysis of the 2017/2018 RPM
Base Residual Auction 6 (2014) (estimating $9 billion
in savings from demand response participation in
single capacity auction).!

1 These benefits might be likened to those from the auction
mechanism through which airlines compensate passengers who
volunteer to be “bumped” when the number of flyers at the gate
exceeds the number of available seats on an aircraft. As with
demand response, the passenger’s willingness to shift her travel
to a different, non-peak time can save the operator — and
ultimately fellow customers — sums of money vastly exceeding
the amount of the travel voucher, given the “supply side”
alternatives (e.g., flying a second plane or limiting advance sales
to the number of seats, notwithstanding significant and well-
known “no-show” rates). See Julian L. Simon, The Airline

The premises underlying FERC’s actions are that
these benefits derive from demand response
participation as a resource in these markets; that
economic and regulatory barriers can and do obstruct
such participation; and that wholesale demand
response is compatible with, and not a threat to,
initiatives at the State or utility level. See Pet. App.
138a, 223a. Notably, each of these has been endorsed
by Congress in the time since FERC first approved
ISO and RTO tariffs providing for demand response
participation in the early 2000s. Numerous
enactments affirm the importance of demand
response, see, e.g., 42 U.S.C. § 17381(4) (Smart Grid
Modernization); id. § 8279 (“Action Plan for Demand
Response”). The Energy Policy Act of 2005 (EPAct
2005) included both provisions supporting state
programs and ones committing the United States to
eliminating “unnecessary barriers to demand
response participation in energy, capacity and
ancillary service markets,” and to ensuring that the

Oversales Auction Plan, J. Transp. Econ. & Pol’y 319, 319 (1994)
(collecting evidence that such mechanisms “raise[] the capacity
level at which planes fly, hence increasing their efficiency and
lowering price”). It would miss the point to say in these
circumstances that the passenger “participated only by declining
to act.”

Two further similarities might be noted: First, the benefits
of this demand-side response occur even though retail travel
prices already reflect supply and demand, e.g., tickets are much
cheaper at off-peak times; second, though this mechanism - like
demand response in electricity markets — did not arise for
environmental reasons, flying a single plane at full capacity (and
having the “bumpees” ride on a scheduled later flight) is much
less polluting than adding a flight to transport them at the
original departure time. See pp. 14-17, infra.

benefits from such participation be shared among all
customers in “the same regional electricity entity.”
Pub. L. No. 109-58, § 1252(f), 16 U.S.C. § 2642 note.

While respondents do not dispute that demand
response lowers wholesale energy rates, see Pet. App.
7a, they nonetheless maintain, as did the decision
below, that these effects reflect no more than the
truism that a diminution in retail demand for any
product will reduce its wholesale price. According to
the D.C. Circuit’s majority, wholesale demand
response is a “fiction” and demand response resources
“participate’ in wholesale markets only by declining
to act,” id. 6a. See also id. 8a, 11a (portraying Order
745 as “luring” into wholesale markets resources that
are “simply... part of the retail market,” in order “to
create [FERC] jurisdiction”).?

These assertions are fundamentally mistaken,
and they reflect serious misunderstandings of how
organized wholesale markets operate and how
demand response participates in them.

There is nothing problematic, let alone
“metaphysical,” Pet. App. 6a, about the distinction
Order 745 recognizes, between demand response
participation in organized wholesale markets and in
retail price-responsive electricity demand programs
regulated by States. To be sure, not consuming
energy at a particular time is a common denominator
of all demand response (and accordingly a central

2 Respondents make no effort to ratchet down the D.C.
Circuit’s skeptical tone, placing “demand response” within scare
quotes more than thirty times in their Brief in Opposition, to the
point of noting respondent APPA’s own experience “sponsor[ing]
... ‘demand response’ programs,” Br. Opp. iii.

focus of FERC’s — supposedly inculpatory — “single
definition,” Pet. App. 5a (citing 18 C.F.R. §
35.28(b)(4)).2 But wholesale market participation
entails much more than “only” inaction. In order to
bid into auctions in FERC-regulated markets,
demand response resources must satisfy “rigorous
performance characteristics (response time and
minimum load size), [subject to] special contractual
and compensation mechanisms, robust measurement
and verification methodology, and high-speed
communications interface to enable automatic
control.” Jaquelin Cochran, et al., Market Evolution:
Wholesale Electricity Market Design for 21st Century
Power Systems at 25 (2013). These requirements
entail often-substantial investments in control,
metering, and verification technology.‘

Even more important, where retail-level demand
response programs typically allow participants to
“decline to act” (or not) when confronted with a price
signal, Pet. App. 6a, wholesale demand response is a
“firm’ resource[]’and is “dispatchable,” Hurley, et al.,
Demand Response as a Power System Resource
(2013) at 15. In wholesale markets, system-wide

3 The opinion below seemed to assume that the inclusive
definition itself proved that Order 745’s distinction was
“fictional,” Pet. App. 6a, and indeed that FERC was without
authority. But, as the Court explained last Term, it is not at all
unusual for a “single physical action” or “activity” to be subject
to multiple laws, both state and federal. Oneok, Inc. v. Learjet,
Inc., 135 S. Ct. 1591, 1600 (2015). See pp. 20-21, infra.

‘ Time-shifting is itself a cost to those who provide
wholesale demand response and sometimes a direct monetary

one, as when a manufacturer has to pay employees extra to
reschedule shifts. See Private Petrs. Br. 55.

10

decisions are made in reliance on binding, contractual
commitments to reduce electricity use at particular
points in time. Thus, demand response resources
participate in these markets the same way other
resources do: by efficiently and reliably meeting the
identified system need that the particular market is
designed to meet — whether maintaining the stability
of the grid, in ancillary services markets, or ensuring
the real-time or future balance of supply and demand,
in energy and capacity markets, respectively.

Wholesale market participation enables demand
response to have a “much larger price impact,”
because resources help to “set the market clearing
price” and thereby reduce costs for consumers region-
wide. Hurley at 16. Participation in multistate
wholesale markets likewise enables resources to be
“compensated for the full system value of their
demand reduction,” id. at 19, and “wholesale markets
[also] creat[e] ... opportunities for entrepreneurs to
find innovative means to supply demand response,”
thereby widening “the pool of potential participants.”
Id. at 21. Cf. Br. Amicus Curiae for EPSA, Conn.
Dept. Pub. Util. Control v. FERC, No. 07-1375 (D.C.
Cir. Sep. 2008) (““EPSA CDPUC Br.”) (available at
https://goo.gV/lsASvZ) at 15 (“The whole point of
establishing a regional transmission operator ... with
federal oversight provided by the Commission, is to
have an entity focused on market-wide, regional
concerns.”).

Indeed, the skepticism expressed by respondents
and the decision below’ rests on_ serious
misunderstandings about the FERC-regulated
organized wholesale markets. Precisely because
those markets are structured to serve discrete system

11

needs (and because markets electricity are so unlike
those for “steel [and] fuel,” Pet. App. 8a), it is entirely
common for generating sources to _ receive
compensation for forbearance, when that is what is
needed. Coal-fired plants that bid successfully to
provide reserve service or do so in a market auction
for “frequency regulation,” participate and receive
compensation for reducing output or not operating.
Participants in FERC-regulated capacity markets do
not sell “energy itself,” NRG Power Mktg. v. Me. Pub.
Util. Comm'n, 558 U.S. 165, 168 (2010), but instead
receive compensation for binding, future
commitments that ensure system operators there will
not be shortfalls.®

Nor are respondents well positioned to cast
aspersions on FERC’s recognition that regulatory
uncertainties and real-world economics can result in
less-than-socially-beneficial levels of investment.
That is the very reason for wholesale capacity
markets in which respondents participate: Some
measure of compensation certainty is necessary to
encourage efficient levels of provision. See Conn.

Dep't Pub. Util. Control, 569 F.3d 477, 484 (D.C. Cir.

5 These organized wholesale markets are fundamentally
different because electricity is fundamentally different. A
devotee of unregulated markets would be surprised to learn that
the capacity markets from which many respondents receive
payments begin with a central authority (the RTO/ISO)
determining the multistate region’s future needs and include
“Minimum Offer Price” rules,” restricting how low a price
particular “suppliers” may accept and impose. an
“administretively-determined price” when the market does not
clear. See FERC Staff Report AD13-7-000, Centralized Capacity
Market Design Elements (Aug. 2013) at 2, 5, 24.

12

2009) (noting that challengers in that case had argued
that “as a matter of economic theory, the, supply of
capacity is actually perfectly elastic and hence fixed
at the long run cost of new entry” but had then
“candidly conceded [that] ... this may be true in the
theoretical world of economics textbooks, but is
almost certainly false in the real world outside
them”).

Il. The Public Benefits of Wholesale Demand
Response Are Numerous, Extensive, and
Increasingly Important

The benefits of demand response participation
extend well beyond the substantial and indisputable
rate impacts that support Order 745 and impelled
system operators to incorporate demand response
bidding more than a decade ago.

First, although respondents and the decision
below depict wholesale market demand response and
retail-level programs as a jurisdictional zero-sum
game, the reality is starkly opposite. The investments
and innovations that participation in wholesale
markets encourage also benefit those retail-level
programs. In fact, state officials who regulate those
programs 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.” Ltr. of New Eng. Conf. Pub. Util.
Comm’rs, Docket No. RM10-17, 2-3 (July 1, 2014).

Moreover, as FERC explained, demand response
participation for economic reasons improves the
operational performance of the grid. By reducing the
amount of power that must be transmitted at critical

13

times, demand response helps 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 "'.S. Dep't of Energy,
National Electric Transmission Congestion Study 57
(Dec. 2009) (describing mitigating effects of
“aggressive demand response” in New England).

Finally, as Amici can attest, the rate savings and
economic and operational efficiency benefits of Order
745 are achieved while significantly reducing the
serious environmental and public health harms that
the bulk power system can inflict.

These benefits result in large part from the same
basic circumstances that prompt economic demand
response participation. For example, even basic time-
shifting, e.g., industrial users’ rescheduling
production to night-time hours, can produce dramatic
public health benefits. Generation sources that
provide marginal supply during peaks are not only
economically inefficient; they are sometimes 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, which can cause respiratory disease
and premature death. See National Research
Council, et al., Hidden Costs of Energy 8, 119-23
(2010).6 And because peaking plants are frequently

6 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).

14

built near major population centers, the air pollutants
they discharge cause disproportionate .harm to
human health. Jd. at 120-121, 363.

Moreover, when demand response resources bid
successfully into capacity markets, they “not only
offset the operation of power plants [and transmission
lines], but also their very construction.” Shen, et al.,
Addressing Energy Demand through Demand
Response: International Experiences and Practices
(June 2012) at 2. The health and ecological benefits
of avoiding such construction are large. Hurley at 13.

At the other end of the life cycle, demand response
resources can enable the on-schedule retirement of
older, inefficient large generating plants, which are
often the greatest sources of pollution, alleviating
system operators’ concerns about shortfalls during
the time it takes to bring new capacity on line. See
Scott Harvey, et al., Evaluation of the New York
Capacity Market (Mar. 2013) at 164.

Demand response resources that clear organized
wholesale markets commonly yield reductions in
overall electricity consumption (users who make
dispatchable commitments, through aggregators, to
turn down air conditioners during peak usage periods
will rarely run them more intensively during non-
peak hours), which can yield even larger public health
benefits. Cf. Fabio Caiazzo, et al., Air Pollution and
Early Deaths in the United States, 79 Atmospheric
Env't 198, 202 (2013). Indeed, reductions during

For example, the National Academy of Sciences determined that
the most polluting 5% of natural gas-fired power plants cause
approximately 550 times as much damage per kilowatt hour of
electricity generated as the cleanest 5%. Hidden Costs at 123.

15

summer peaks, when demand resources are likely to
be dispatched, are vital, because concentrations of
harmful pollutants such as smog (or ground level
ozone) are already particularly high then. See
American Lung Ass'n, State of the Air 30 (2014).?

Especially important, demand response has
significant potential to facilitate greater integration
into the grid of renewable generating sources. The
North American Electric Reliability Corporation
estimates that renewable generation will account for
nearly 17% of capacity by 2022, NERC Long Term
Reliability Study at 65 (2012), and a National
Renewable Energy Lab study found that solar and
wind sources alone could comprise nearly half (48%)
of U.S. energy supply by 2050. Renewable Electricity
Futures Study p. xvii (2012). Such clean energy
resources produce power inexpensively, but their
output is variable and therefore can present
operational! challenges for power systems.

Demand response resources enable system
operators to reduce load at times when those variable
sources are not generating — and can also ensure their
output is absorbed at times, such as with wind power

7 While the overall health and environmental impact of
demand response is starkly positive, respondents have pointed
out, and Amici would not dispute, that it is not universally so.
Curtailments that involve “behind the meter” use of high-
polluting generators can cause environmental harm, even as
they relieve congestion and otherwise benefit the grid. But there
plainly are more appropriate ways to target such harms than a
categorical prohibition on highly beneficial wholesale market
demand response. See, e.g., Del. Dep't Nat. Res. v. EPA, 785 F.3d
1 (D.C. Cir. 2015) (rejecting broad Clean Air Act exception for
diesel generators operated on a non-emergency basis).

16

generators overnight, when system oversupply would
be a concern. See PJM Ltr. to U.S. Dept. Energ.
Building Technologies Program (April 29, 2013) at 3
(http://goo.g/9M5qtG) (describing “[a]lggregated and
controllable residential electric water heaters [that]
can help grid operators ... by heating water in
response to a signal that there is an abundance of
wind energy on the system”). Demand response is
particularly valuable both because it is a fast-acting
resource and because renewable generators tend to be
“added to the grid in small increments,” and demand
response can likewise be procured “as needed.”
Navigant, Carbon Dioxide Reductions from Demand
Response 16 (Nov. 2014).

These environmental and health benefits are, in
significant part, distinct to wholesale demand
response and depend on the efficiencies that
wholesale market participation provides. One
utility's individual retail demand response program
may not provide sufficient resources to enable the
retirement of an out-of-market generator that
provides reserve or peaking power both within and
outside the utility’s service area, but aggregation of
demand response resources from around the region
might suffice. Similarly, one State’s price-responsive
demand program may not provide enough flexibility
to accomplish the reliable integration of large grid-
connected wind farms that could provide clean power
to customers across a multistate region. Aggregating
geographically varied demand response resources
allows such integration to occur.

The dramatic shifts in the mix of resources that
will meet the Nation’s future energy needs are
occurring in conjunction with fundamental changes in

17

America’s electricity infrastructure. The Nation’s
power grid, for all its strength, was a signal
“engineering achievement of the twentieth century,”
see http://greatachievements.org/ (last visited Jul. 15,
2015) (emphasis added), and Congress has recognized
the need for a far-reaching “modernization of the
Nation’s electricity transmission and distribution
system,” 42 U.S.C. § 17381. Demand response
resources are an integral part of this more dynamic
power system, one more reliant on “digital
information and controls technology,” id. § 17381(1).
Indeed, as part of legislation committing to this
endeavor, Congress expressly identified
“Idjevelopment and _ incorporation of demand
response,” id. § 17381(4), as among the ingredients
that “characterize a Smart Grid.”

III. The Federal Power Act Does Not Prohibit, and
Congress Has Affirmatively Endorsed, Demand
Response Participation in FERC-Regulated
Wholesale Markets

Respondents and the opinion below depict the
adverse consequences of banishing demand response
resources from wholesale markets as the necessary
price of enforcing the “unambiguous|]}” intent of the
Federal Power Act. Pet. App. 14a.
However “importan[t] demand response resources
[are] to the wholesale market,” the court concluded,
“Congress left [their] regulation ... to the states,
rather than to the federal government.” Jd. See also
Br. Opp. 28 (“The division of regulatory authority
between the federal government and the States
might not produce the most efficient regulation ...
but ‘Our Federalism’ has many virtues that extend
well beyond efficiency.”).

18

This is not so. Congress manifestly did not
prohibit demand response resources from FERC-
regulated markets when it enacted the Federal Power
Act, and its more recent enactments unambiguously
affirm the lawfulness and importance of their
participation.

A. The Federal Power Act and This Court’s

Precedents Plainly Establish FERC’s Regulatory

Authority

By its terms, Order 745 is addressed only to
practices in wholesale energy markets of system
operators subject to FERC’s jurisdiction. See
16 U.S.C. § 824(e). And the practices it targets
indisputably “affect[] rates” in those markets, Pet.
App. 7a. See 16 U.S.C. §§ 824d(a), 824e(a). Order
745’s LMP compensation rule, as Judge Edwards
pointed out, applies only in circumstances where it
reduces costs for those who purchase energy at

wholesale. Jd. 40a.

Under this Court’s governing precedents, that
should have been the “end of the matter,” Chevron
U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S.
837, 842 (1984). See also City of Arlington v. FCC,
133 S. Ct. 1863, 1874-75 (2013).

As petitioners explain, the D.C. Circuit's finding
of a “clear” — and dispositive — articulation of
“(clongressional intent” in Section 201(a) of the
Federal Power Act not only slights the powers over
“practice[s] ... affecting ... rates” that Congress
affirmatively conferred in Sections 205 and 206, but
it disregards this Court’s case law treating this
“precise reserved state powers language in § 201(a),”
as “prefatory,” New York, 535 U.S. at 22, and merely

19

descriptive of the Act’s other express reservations —
which are themselves “strictly construed.” Phillips
Petroleum Co. v. Wisconsin, 347 U.S. 672, 679 (1954)
(citation omitted).

But even if Section 201(a) were substantive
rather than “merefly] ... declara[{tory],” 535 U.S. at
22, it could not meet the stringent standard affirmed
in City of Arlington. The opinion below nowhere
explained how Congress’s generic reference to state-
regulated “matters” could be said to “sp[eak] directly”
to the “precise” subject that Order 745 addresses, 133
S. Ct. at 1878 (quoting Chevron), t.e., ISO/RTO
practices for compensating demand response
resources that clear organized wholesale energy
markets, and to have resolved that question against
FERC authority — even when those practices directly
affect wholesale rates. Like the “unbundled
transmissions” that New York held outside the
Section 201(a) language, demand response, RTOs,
and organized wholesale markets are, from the
perspective of the FPA, “a recent development.” 535
U.S. at 21. As the Court explained, “there was neither
state nor federal regulation {in 1935] of what did not
exist.” Id.

The D.C. Circuit’s legal error was similar to, but
significantly worse than, the one the Court corrected
in Oneok. As in that case, the court here mistakenly
assumed that the FPA requires that every “activity” —
identified at the highest possible level of generality —
must be assigned to a single field within which
jurisdiction is exclusive. See id. But the Ninth
Circuit decision in Oneok at least addressed a practice
— manipulation of information about sale prices in
natural gas markets — that the parties agreed was

20

“single” and unitary. Jd. The majority opinion here
addressed a jurisdictional conflict of. its own
manufacture. The opinion disregarded the “practices”
at which Order 745 actually is “directed,” 135 S. Ct.
at 1600, i.e., practices in organized wholesale markets
by system operators subject to FERC regulation,
based solely on the ipse dixit — in the face of market
participants’ contrary understanding — that demand
response is an intrinsically unitary, “retail” product.

Indeed, while Oneok counsels “cautio{n]” before
pronouncing broad “matters” or categories of activity
off limits to either state or federal regulatory
authority, 135 S. Ct. at 1599, under the FPA, a
decision to eject federal regulation from a field surely
requires heightened restraint. There is no
constitutional doctrine of reverse field preemption,
and as petitioners emphasize, the FPA grants FERC,
but not a state regulator, authority over practices
affecting rates under its jurisdiction. See EPSA
CDPUC Brief at 6 (rejecting as “an upside-down view
of the statutfe]” an argument that States have
exclusive authority to regulate practices that “merely
‘affect’ generation facilities”). As in New York, where
the only disagreement within the Court concerned
whether FERC, in the face of State opposition, should
have been more assertive in exercising jurisdiction,
see 535 U.S. at 28 (Thomas, J., dissenting in part), the
only division in Oneok concerned whether FERC’s
“practices affecting” jurisdiction precluded all (or only
some) state regulation. See 135 S. Ct. at 1608 (Scalia,
J., dissenting). No Justice suggested that the States’
“long history of providing ‘common-law and statutory
remedies against monopolies and unfair business
practices” affecting retail rates, id. at 1601 (citation

21

omitted), might divest FERC of its power to regulate
wholesale markets.

B. Congress Has Expressly Endorsed Demand
Response Participation in Wholesale Markets

The decision below pointed to “no evidence” that
if “the 1935 Congress” had “foreseen the
developments to which FERC has _ responded,
Congress would have objected to FERC’s
interpretation of the FPA,” 535 U.S. at 23. But the
decision’s stark errors in construing that statute are
especially startling in view of the series of twenty-first
century legislative enactments, coinciding with
FERC’s activity in this field, that do speak directly to
the question and that express unambiguously
Congress’s approval of demand _ response
participation in the markets overseen by FERC.

The opinion below discussed the most prominent
of these provisions, EPAct 2005 § 1252(f), announcing
that “review of [the provision’s] statutory text,” Pet.
App. 13a (citation omitted), along with its title and
the content of immediately neighboring provisions,
reinforced the majority’s thesis that demand response
belongs exclusively to the “retail market,” subject to
state regulation only. Jd. 14a.

That is untenable. To be sure, the first clause of
the provision, as the court noted, contemplates
“encourag|[ing]’ and ‘facilitat[ing]” certain retail-level
efforts, Pet. App. 13a — activities not inconsistent with
the hypothesized regime, where demand response
resources are statutorily forbidden from wholesale
markets; and a neighboring provision does include
language providing for FERC’s “technical assistance”
to demand response initiatives at the State level. See

22

Pet. App. 13a-14a (citing § 1252(e)); accord Br. Opp.
27 (asserting that this “context” “makes clear” that
Congress was focused only on encouraging “smart
metering” technology under the purview of state
regulators).

But the statutory text that immediately follows
the clause the court parsed discloses that Congress
expressly endorsed and sought to expand demand
response resources’ “participation iii energy, capacity,
and ancillary services markets” — i.e., the familiar
triad of FERC-regulated organized wholesale
markets. And the provision’s next sentence
establishes a “further national policy,” that the
benefits of participation in those markets should be
shared broadly with all customers in “the same
regional electricity entity,” EPAct 2005 § 1252(f)
(emphasis added), a term that fits RTOs and ISOs to
a T, but could not describe State-regulated utilities
that operate retail demand response programs.

The majority opinion’s observation that the
EPAct 2005 provision is a “policy statement, ... not [a]
delegation{] of regulatory authority,” id. 12a (quoting
Comcast Corp. v. FCC, 600 F.3d 642, 654 (D.C. Cir.
2010)), and, as such, could not “nullify a clear and
specific grant of jurisdiction” id. (quoting New York,
535 U.S. at 22), is irrelevant. FERC did not purport
to rely — and did not need to rely — on any authority
beyond its power over “practice[s] ... affecting ...
rate[s]” conferred by Sections 205 and 206,
affirmative grants that are coextensive with the
Commission’s authority over rates themselves.
Indeed, the “mere policy declaration” language the
opinion quoted in denigrating Section 1252(f) came
from this Court’s description of the provision —-

23

Section 201(a) — that supplied the linchpin for the
D.C. Circuit’s jurisdictional ruling.

But policy statements like § 1252(f) do cast light
on “the contours of [an agency’s} statutory authority,”
Comcast, 600 F.3d at 654, and they are not an
exception to the judicial responsibility to give effect to
the plain meaning of statutes Congress enacts into
law — and to read statutes so as “to make sense rather
than nonsense out of the corpus juris,” W. Va. Univ.
Hosps., Inc. v. Casey, 499 U.S. 83, 101 (1991). It
would be “nonsense” to construe the FPA’s 80-year-
old generically-worded declaration as requiring that
demand response resources be ejected from organized
wholesale markets, when Congress announced a
national policy to enable their fuller “participation.”

As for “context,” the bare fact that certain
surrounding provisions relate to federal assistance to
States and retail-market initiatives supports FERC’s
understanding no less than respondents’. Nothing in
Order 745 contemplates that demand response would
or should participate exclusively in wholesale
markets. Rather, FERC recognized, as do state
regulators and Congress, that wholesale market
participation is consistent with innovative and
vibrant retail demand response programs. See p.13,
supra.

Other proximate provisions in fact push against
the D.C. Circuit’s “retail only” theory. For example,
Congress’s reference to measures “ensur[ing] that ...
demand resources are provided equitable treatment

.. relative to the resource obligations of any load-
serving entity,” in “regional transmission ...
operations,” EPAct 2005 § 1252(e)(3)(E), is naturally
understood as referring to wholesale markets, where

24

demand response resources compete with generators,
to meet those obligations. Likewise, adjacent
provisions directing the Secretary of Energy and
FERC to report to Congress concerning, inter alia, the
“identififable] and quantiffiable] ... national benefits
of demand response,” “existing demand response
programs,” and “the annual resource contribution of
demand resources,” id. §§ 1252(d)(3) and (e)(3), have
been understood since their enactment to address
wholesale, as well as retail demand response. The
Energy Secretary's 2006 report, Benefits of Demand
Response in Electricity Markets and
Recommendations for Achieving Them, discussed
wholesale markets extensively. See pp. 13-16, 74-80.
So did FERC’s congressionally-mandated 2006 report,
which, after explaining that “at [the] wholesale level,
the impetus comes from independent system
operators (ISOs) or regional transmission
organizations (RTOs),” described “demand-bidding
programs’ operated by NYISO and ISO-NE, where
customers “bid a price at which they would be willing
to curtail their load ... on a day-ahead basis.” FERC
Staff Report, Assessment of Demand Response and
Advanced Metering (Aug. 2006) (“2006 Assessment”)
at 6, 50. See also id. 49-51 (describing “[c]apacity
market programs ... typically offered by wholesale
market providers such as ISOs/RTOs” and programs
“allowing demand response to participate in
ancillary-service markets’).

The policy declarations codified in EPAct 2005 do
not stand alone. Other provisions of the U.S. Code are
equally irreconcilable with the thesis of a “clear{] ...
Congressional intent,” Pet. App. 8a, to exclude
demand response from wholesale markets. For
example, 10 U.S.C. § 2919 authorizes the Secretary of

25

Defense “to participate in demand response programs
... conducted by,” inter alia, “[a]Jn independent system
operator” or “[a] third party entity (such as a demand
response aggregator or curtailment service provider)
implementing demand response programs on behalf
of an ... independent system operator.” Id.
§ 2919(a)(2), (4). And provisions like those discussed
above, authorizing federal “smart grid” funding of
research into “means for demand response ... to
provide ancillary services,” 42 U.S.C. § 17384(a)(2),
would make no sense if demand response were
confined by law to the “retail market.”

IV. FERC’s Understanding of the Allocation of
Regulatory Authority is Reasonable and
Judicious

Once the lawfulness of demand response
participation in wholesale markets is settled, the
basic regime Order 745 embraces — with retail
demand response matters subject to state regulation
and wholesale market practices under FERC’s
oversight — is unassailably reasonable and correct.

It could not seriously be claimed, for example,
that Congress meant for the subject of Order 745 —
the level and means of compensation paid by RTOs to
demand response resources that clear their wholesale
energy markets — to be a matter of state regulation.
And the notion that demand response resources
might participate in wholesale markets without any
regulation, state or federal (or that compensation
practices, alone among matters directly affecting
wholesale rates, would be exempt from all
government oversight) — is equally a nonstarter:
“[Wjhen a dispute arises over whether a given
transaction is within the scope of federal or state

26

regulatory authority, we are not inclined to approach
the problem negatively, thus raising the possibility
that a ‘no man’s land’ will be created.” Fed. Power
Comm'n v. La. Power & Light Co., 406 U.S. 621, 631
(1972) (citation omitted).

Respondents’ objections, waving the flag of
federalism, are peculiar. Recognizing that Order 745
does not regulate retail sales of electricity or retail
demand response programs and does not purport to
preempt state law of any kind, they nonetheless insist
that participation in FERC-regulated wholesale
markets impinges on State prerogatives, even
asserting that Order 745 “effectively” sets retail
market prices, by raising the “lost opportunity cost” of
purchasing electricity at the state-regulated rate. Br.
Opp. 9, 24.

FERC’s Order provides the first and essentially
complete answer: a State that has the objections
hypothesized — or any others — need not allow
resources within its jurisdiction to participate in
organized wholesale markets.* See Joint States Br.
15-16.

5 Notably, certain respondents, advancing a muscular view
of the Commission's authority over practices affecting rates in a
different case, have argued that States’ “latitude to retreat from
the federal wholesale market entirely if they no longer believe
that it is serving their interests” is sufficient protection. Br.
Opp., Nazarian v. PPL EnergyPlus LLC, No. 14-614 (Feb. 2015)
at 2. Order 745’s regime provides something much more
nuanced and therefore more potent: States may retain the
benefits of wholesale markets — indeed they may retain the
benefits of wholesale demand response (so long as other States
in their regional system permit participation). That such free-
riding is not a problem in the real world is powerful confirmation

27

The further answer comes from actual state
regulatory authorities, which in lopsided numbers,
supported FERC’s jurisdiction in this case,
emphasizing the myriad ways wholesale market
participation benefits state-regulated demand
response programs and broader state policy interests.
See p. 16, supra. It is unsurprising that States would
prefer FERC’s regime, which enables them to decide
for themselves whether these benefits are in their
interest, to respondents’ rule, which, in the name of
federalism, denies States the power of choice and
imposes the widely disfavored option. That States
have aligned in favor of FERC’s jurisdiction shows in
itself how different this case is from recent ones where
the balance between State and federal interests was
genuinely under pressure.®

For its part, the opinion below explained its ruling
in terms of prophylaxis, i.e., that depriving FERC
authority over wholesale market practices was
necessary to ensure that “price-responsive demand
[remains] untouched ... in the future.” Pet. App. 10a.
That vigilance seems truly unwarranted here: Not

that retail programs can be strengthened by wholesale market
participation. See p. 13, supra.

® Respondents’ attempts to make Order 745 look like retail
rate-setting entail hiding a great deal inside the word
“effectively.” The “lost opportunity costs” of purchasing energy
at retail include not only the wholesale energy market demand
response compensation at issue here, but any demand response
payment available in any wholesale market — and every
incentive, from whatever source, to consume less. In fact,
opportunity costs extend to anything that lowers the price of any
good that could be bought with funds used to purchase
electricity.

28

only does Order 745 (and the understanding of FPA
authority on which it rests) leave retail demand
response programs to state regulation, FERC defers
to the States as to their residents’ wholesale market
participation. This sheep comes as a sheep. Cf.
Morrison v. Olson, 487 U.S. 654, 699 (1988) (Scalia,
J., dissenting).

The decision’s depiction of Order 745 as
improperly “luring” demand response from its
rightful place in “the retail market” “to create [FERC]
jurisdiction,” Pet. App. 8a, 11a, is similarly untenable.
Order 745 regulates practices by entities already
subject to FERC regulation. And wholesale demand
response participation did not originate with Order
745; its impetus came substantially from [SOs and
RTOs, who received FERC’s permission to allow
demand response bidding in their auctions in the
early 2000s. See 2006 Assessment at 6. (Some of
these paid LMP compensation, as did a number of
RTOs at the time Order 745 was adopted, Pet. App.
63a-65a).

FERC’s restrained resolution of the jurisdictional
question here is not only reasonable, but exemplary.
Section 201(a) does not, as this Court has held, impose
an independent substantive limit on the FPA’s broad
grants of power, let alone enact a rule of “reverse
preemption” of the sort the D.C. Circuit supposed.
And the fundamental changes in the electricity
universe over the past four decades have, as
respondents themselves have elsewhere explained,
altered the state-federal balance: “as the Nation’s
energy markets become more complex and regional,
the Commission’s regulation of wholesale rates and
services ... have an increasing likelihood of

29

incidentally affecting issues of local concern,” EPSA
CDPUC Br. 13.'° But as FERC recognized in Order
745, the interests served by Sections 205 and 206
need not be pursued at all costs; nor need the values
underlying Section 201(a) be disregarded. Cf.
NARUC v. FERC, 475 F.3d 1277, 1281 (D.C. Cir.
2007) (“Any proper construction of § 201 must give
effect to both FERC’s jurisdiction over certain
transactions occurring over public utilities and to
§ 201(f’s exclusion of state facil ties.”). On the
contrary, fundamentally important developments and
initiatives relating to the power system are
increasingly occurring at the State and local level,
presenting regulatory challenges that will benefit
from coordination, rather than _ jurisdictional
brinksmanship, and from the “[c]autious” approach,
toward preemptive authority (in either direction) that
FERC followed here. See Oneok, 135 S. Ct. at 1599.

V. The D.C. Circuit’s Alternative Holding Should Be
Reversed

The Court of Appeals also “erred in holding [Order
745] is arbitrary and capricious.” FERC Br. I. The
decision below ostensibly confined that alternate
holding to FERC’s procedural obligation to respond
directly to the points raised in Commissioner
Moeller’s dissent, a ruling, as FERC demonstrates,
that cannot stand. The Commission gave a
comprehensive, reasoned response to the dissent,

10 Other respondents recently offered a much harder-edged
version of this point, arguing that States, “by rendering their
local electricity markets largely dependent on the federally
regulated wholesale market, [have] necessarily ceded much of
their traditional regulatory authority.” Nazarian Br. Opp. 6.

30

which had consisted largely of endorsing the principal
objection raised by commenters, that FERC made the
wrong choice by selecting LMP (subject to the net
benefits test), rather than “LMP-G,” as _ the
compensation metric. See FERC Br. 57-60; Richard
J. Pierce, A Primer on Demand Response and A
Critique of FERC Order 745, 3 Geo. Wash. J. Energy
& Envtl. L. 102, 108 (Winter 2012) (“{I] would have
joined [the dissenting] opinion had I been a member
of FERC. Yet, if I were instead a judge reviewing
Order 745, I would uphold FERC’s rule on the basis
that the agency provided reasoning adequate to
supp« .t each step in its decision-making process.”).

But to the extent the ruling below is instead
treated as a de facto acceptance of respondents’
objections (albeit one not filtered through the lens of
requisite deference), it should not stand. As explained
above, Order 745 is fundamentally an application of
principles common to almost every organized
wholesale market auction under FERC’s jurisdiction:
that diverse resources that are comparably situated
with respect to the market or system benefit should
be treated comparably (“equitabl[y],” in Congress’s
phrasing); that the same compensation generally is
accorded to all resources that clear the market, rather
than, e.g., one that takes account of their costs; and
that markets’ structural shortcomings (including
barriers to entry and the potential for manipulative
behavior) should be accounted for.

Respondents’ objections principally entail
disputing whether demand response and generating
resources really are sufficiently comparable, along
with an ostensible demonstration that, as a matter of
economic theory, LMP “overcompensates” demand

31

response resources, raising the specter of
participation (and curtailment of economic activity)
above the “optimal” level. Pet. App. 15a-16a. But
even airtight theoretical demonstrations often
founder under real-world conditions, see CDPUC, 569
F.3d at 484 (noting that a proposition arguably “true
in the theoretical world of economics textbooks, [was]

. almost certainly false in the real world outside
them”); and it would be hard to read Congress’s
multiple enactments on the subject as viewing the
problem with demand response as one of too much
participation.

And FERC surely was correct that any inquiry
into windfalls or “overcompensation” would be a
significant departure from its bedrock approach:
Generating resources that submit zero-dollar bids are
paid full LMP compensation, notwithstanding their
expressed willingness to accept less. (Indeed, for
nuclear plants, marginal cost is sometimes described
as negative, because shutting down would be more
expensive than dispatch.). See Pet. App. 101a-102a.
Offering demand response, in contrast, entails often-
costly investments in metering, control, and
verification technology.

And while respondents have arguments why
demand response resources are not comparable — or
not sufficiently so to warrant comparable treatment —
such judgments are within an expert agency’s broad
discretion. In that regard, respondents cannot deny
that demand response resources perform the basic
function of balancing demand and supply as
generators do. And, as Amici explained in comments
to FERC, it should not be assumed that
dissimilarities between demand response and

32

generation sources cut uniformly in the latter’s favor.
There are many situations in wholesale markets
where demand response performs better than do
generators — e.g., in ancillary service markets, where
highly developed demand response resources are
“prized” for their reliability, swiftness, and flexibility,
see Peter Cappers, et al., Market and Policy Barriers
for Demand Response Providing Ancillary Services in
U.S. Markets 2 (March 2013). And, as explained
above, demand response resources not only ensure
more reasonable prices when markets are under
pressure, but avoid significant costs — in terms of
pollution and system stress — that should make them
preferable to comparably priced generation. !!

Conclusion

The judgment of the court of appeals should be
reversed.

Respectfully submitted,

11 To be sure, allowing demand response participation does
not perfectly internalize these costs, but FERC was permitted to
consider them, precisely in the manner it did, in determining
that these resources are sufficiently comparable and that LMP
compensation was reasonable and nondiscriminatory. Cf.
Michigan v. EPA, 576 U.S. __ (June 29, 2015), Slip Op. 7 (“cost’
includes more than the expense of complying with regulations ...
[and includes] harms ... to human health or the environment”).

33

Michael Panfil David T. Goldberg

Vickie L. Patton Counsel of Record
Tomas Carbonell DONAHUE & GOLDBERG, LLP
Peter Zalzal 99 Hudson Street, 8t» Floor
ENVIRONMENTAL DEFENSE FUND New York, NY 10013
2060 Broadway, Suite 300 (212) 334-8813
Boulder, CO 80302 david@donahuegoldberg.com
js ee Sean H. Donahue

DONAHUE & GOLDBERG, LLP

1130 Connecticut Ave., NW

Gregory M. Cunningham ,
Jerry Elmer Suite 8 ”
CONSERVATION Law Founpation “@hington, D.C. 20036
47 Portland Street, Suite 4 Counsel for all Amici Curiae
Portland, ME 04101
Counsel for Conservation Law Jill Tauber
Foundation Sara Gersen

EARTHJUSTICE

1625 Massachusetts Ave., NW,
Tony G. Mendoza Suite 702

Casey A. Roberts

SIERRA CLUB

85 Second Street, Second Floor
San Francisco, CA 94105

Washington, DC 20036

Allison Clements

John N. Moore
Counsel for Sierra Club Jennifer Chen

NATURAL RESOURCES
Howard A. Learner DEFENSE COUNCIL
Justin Vickers 40 W 20th Street
ENVIRONMENTAL LAW AND New York, NY 10011

POLICY CENTER
35 E. Wacker Drive, Suite 1600
Chicago, IL 60601

Counsel for Environmental Law
And Policy Center

Counsel for Natural Resources
Defense Council

34

APPENDIX

DECRIPTION OF AMICI CURIAE

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 emergy 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.

Environmental Defense Fund (“EDF”) is a
national non-profit, non-governmental, non-partisan
organization, representing more than 300,000
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 zroblems. EDF advocates
policies that protect human health and the
environment and that support a strong economy by
ensuring that cost-effective clean energy resources

A-1

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.

Natural Resources Defense Council (NRDC)
is a national nonprofit organization with
approximately 300,000 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.

Sierra Club is a national organization founded
in 1892 with more than 60 chapters and over a
million members and supporters. 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

A-2

the environmental and public health problems
associated with energy generation, and actively
advocates for demand-side management and
renewable energy resources.

A-3

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0318%3A23. Public record. Not legal advice.