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Appeals court hears arguments on FERC jurisdiction over wholesale demand response in RTO markets


From the October 2, 2013 issue of Public Power Daily

Originally published October 2, 2013

By Robert Varela
Editorial Director
Oral arguments on Sept. 23 provided few clues as to how a three-judge appeals panel will rule on Federal Energy Regulatory Commission orders directing regional transmission organizations to pay full locational marginal prices to demand response resources that participate in the RTOs’ markets. Representing the plaintiffs (including APPA), attorney Ashley Parrish argued in the U.S. Court of Appeals for the District of Columbia Circuit (Electric Power Supply Assn., et al v. FERC) that the commission crossed the Federal Power Act’s bright jurisdictional line between state regulation of retail rates and federal regulation of wholesale rates when it tried to align retail and wholesale rates with its demand response orders. 

Judge Laurence Silberman said FERC's rationale treating retail consumers who choose not to consume electricity at retail as bidding in the wholesale market is "a bit of a fiction." FERC attorney Bob Solomon conceded the point. However, Judge Harry Edwards appeared to side with FERC, stating several times that the commission's actions on demand response appeared to be within the wholesale market, where rates are subject to FERC regulation. 

Assuming that FERC has jurisdiction over wholesale demand response, Parrish argued that paying demand response providers the full locational marginal price (LMP), subject only to a "net benefits" test, is unjust and unreasonable. Payment of the full LMP would overcompensate demand providers and discriminate against other suppliers, he said.

FERC’s net benefits test for paying demand response providers does not cure the problem of overcompensating demand response providers by paying the full locational marginal price, Parrish said in response to a question from Judge Janice Brown. "You can’t cure undue discrimination by only unduly discriminating part of the time," Parrish said.
 

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