The scope of the Commission’s jurisdiction over demand response has not been resolved definitively. In 2011, the Commission issued Order No. 745, which required organized wholesale market operators to compensate demand response comparably to generators—in other words, to treat the reduction of a unit of consumption comparably to the production of a unit of energy.2 Several parties have contested the authority of the Commission to regulate compensation levels for demand response in wholesale markets. The Commission rejected the jurisdictional challenge3 but the issue is still pending before the United States Court of Appeals for the District of Columbia Circuit.4 Parties opposing Order No. 745 have argued that demand response is an activity that occurs at the retail level because it reflects the choice of an end-user to not consume power, and, therefore, only the States—not the Commission—may regulate it. The Commission, however, has argued that demand response activities directly affect the price for wholesale power and therefore fall within the Commission’s exclusive jurisdiction over wholesale rates. The Commission also has noted that the Energy Policy Act of 2005 required the Commission to remove unnecessary barriers to demand response participation in the energy, capacity, and ancillary services markets, which are within the jurisdiction of the Commission.
Lincoln, like the petitioners in the rulemaking that resulted in Order No. 745, argues that the Commission lacks jurisdiction over demand response and therefore has no authority to levy civil penalties for the conduct in question. Even if demand response affects wholesale rates, Lincoln argues that the Commission may not regulate indirectly what it cannot regulate directly.
A ruling that the Commission lacks jurisdiction over demand response, either in this case or in the D.C. Circuit challenge to Order No. 745, could have major consequences for the wholesale markets for energy and capacity. The markets have seen a significant increase in demand response participation in recent years, which many consider the primary legacy of former Chairman Jon Wellinghoff. If the Commission lacks jurisdiction over demand response, the extent to which demand response can participate in the wholesale markets is unclear.
1 Lincoln further argues that the Commission’s petition should be dismissed because the Commission failed to provide fair notice of the conduct it now considers improper and because the Commission failed to plead its claim with sufficient particularity.
2 Demand Response Compensation in Org. Wholesale Energy Mkts., Order No. 745, 76 Fed. Reg. 16,658, FERC Stats. & Regs. ¶ 31,322 (2011).
3 See id. at PP 103-15
4 Oral arguments for this proceeding were held on September 23, 2013. See Elec. Power Supply Ass’n v. FERC, Nos. 11-1486, et al. (D.C. Cir. Dec. 23, 2011).