On September 17, 2014, the United States Court of Appeals for the District of Columbia Circuit denied the Federal Energy Regulatory Commission’s request for rehearing en bancof the D.C. Circuit’s decision to vacate FERC’s wholesale demand response compensation rule.[1]  The D.C. Circuit’s original decision striking down FERC’s demand response program remains in place, but the Court has not yet issued its mandate.  Rather, on September 22, 2014 FERC and other interested parties moved to stay issuance of the mandate pending the parties’ consideration whether to petition the Supreme Court for awrit of certiorari

Procedural Next Steps

FERC and any other interested party may seek a writ of certiorari at the Supreme Court for a review the D.C. Circuit’s original decision.  If so, the petitioner must make its filing within 90 days of the D.C. Circuit’s denial of rehearing, the deadline of which is December 16, 2014. 

While there is no time limit dictating when the Supreme Court must rule on a writ of certiorari petition, typically, the Supreme Court rules on such a petition within six weeks of its filing.  The Supreme Court generally grants less than two percent of the writ of certioraripetitions it receives.  

Market Implications

The D.C. Circuit’s decision could have far reaching effects for not just the demand response programs but also the capacity markets that the independent system operators and regional transmission organizations administer.  FirstEnergy Service Company, which had previously filed a complaint at FERC against PJM Interconnection LLC, already has filed an amended complaint.[2]  In its amended complaint, FirstEnergy seeks:  (1) “removal of all provisions in PJM’s tariff, agreements, and business manuals that authorize or require PJM to compensate demand resources as capacity suppliers;” and (2) to recalculate the results of PJM’s May 2014 auction by removing demand response resources from the capacity supply pool and applying PJM’s tariff to the auction without the provisions applicable to demand response providers.[3]  In its initial complaint, FirstEnergy had requested that PJM remove all tariff provisions that compensated demand response providers as a form of supply in PJM’s capacity markets and for FERC to declare the results of PJM’s May 2014 auction void and illegal to the extent that demand response resources cleared the auction.[4] 

FirstEnergy’s amended complaint argues the D.C. Circuit’s reasons for vacating FERC’s demand response rule not only apply to the energy markets, but also apply more broadly to the capacity markets.  According to FirstEnergy, “demand response resources do not ‘sell’ capacity; rather, they agree not to consume energy under retail tariffs in exchange for compensation from PJM in order to reduce the amount of generation capacity needed to maintain reliability in the local deliverability area where a demand resource is located.”[5]  Citing the D.C. Circuit’s original decision, FirstEnergy complains “that kind of demand response is not a sale of capacity, ‘in fact, it is not a sale at all.’”[6]

Press reports indicate Chairman LaFleur is still considering what to do next in the wake of the DC Circuit’s decision.  Other reports indicate that the ruling could lower demand response market revenues by $4.4 billion over the next 10 years.[7]  It will be interesting to see whether FERC seeks a writ of certiorari.  The divide among the FERC commissioners makes forward action a petition for cert. complicated.  If FERC chooses not to move forward with an appeal to the Supreme Court, other interested parties such as the Environmental Defense Fund or PJM could potentially seek an appeal.  Even if an appeal is made, it is not certain that the Supreme Court would grant certiorari and hear the case.  Although there is no decisional split between circuit courts that would encourage hearing the matter, the case would present important issues of federalism, regulatory clarity, and a further review of U.S. energy policy.  If the D.C. Circuit’s decision gets upheld, the ISO/RTOs will nevertheless need to make significant changes to their markets concerning their demand response programs, and the resulting impact on their capacity markets.