On 11 June 2014, the Federal Energy Regulatory Commission (FERC) announced its decision to ask the U.S. Court of Appeals for the District of Columbia Circuit to rehear en banc the Electric Power Supply Ass's v. FERC decision that vacated FERC's rule on demand response compensation (Demand Response Compensation in Organized Wholesale Energy Markets, Order No. 745, FERC Stats. & Regs. ¶ 31,322 (2011)). The fate of many demand response programs hangs on the D.C. Circuit's decision.
On 23 May 2013, a three-judge panel vacated FERC's demand response compensation rule in a split ruling that was accompanied by a strong dissent. Judge Brown wrote for the two judge majority, holding that FERC overstepped its wholesale electricity market jurisdiction granted by the Federal Power Act because the rule's compensation scheme lured retail customers into wholesale markets – away from the retail markets regulated at the state level. The majority also held that the rule was arbitrary and capricious because it required, in certain circumstances, that demand response providers and electricity generators be compensated at the same rate despite demand response providers' lack of generation costs.
Senior Circuit Judge Edwards strongly dissented to both of the majority's positions. Judge Edwards promoted deference to FERC in light of the complexity of demand response jurisdiction. He also disagreed that the rule was capricious and arbitrary to the extent that it overcompensates demand response providers due to their lack of generation cost. In Judge Edwards' opinion, FERC had met its rulemaking requirements with a careful showing of why the compensation scheme was neither discriminatory nor unjust.
The D.C. Circuit's decision represents a rejection of a key component of the legacy of immediate past FERC Chairman Jon Wellinghoff. Promoting demand-side management was a central tenant of Wellinghoff’s tenure, who once described himself as a soldier fighting in an "epic battle" over demand response. This comes at a time when another key focus of Wellinghoff's tenure as chairman is the subject of a significant challenge in the Senate. Numerous reports claim that several key senators are actively working to keep acting Chairman Cheryl LaFleur as FERC Chair (over President Obama's choice, Norman Bay). Bay led Wellinghoff’s aggressive enforcement efforts against alleged energy market manipulators, efforts that are subject to increasing criticism.