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D.C. Circuit Vacates FERC’s Wholesale Demand Response Compensation Rule Because It "Goes Too Far"

by Sohair A. Aguirre
Cadwalader, Wickersham & Taft LLP - Washington Office

Kenneth W. Irvin
Cadwalader, Wickersham & Taft LLP - Washington Office

Gregory K. Lawrence
Cadwalader, Wickersham & Taft LLP - New York Office

Natalie Mitchell
Cadwalader, Wickersham & Taft LLP - Washington Office

June 11, 2014

Previously published on June 2, 2014

On May 23, 2014, the U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit"), in a 2-1 decision, vacated in its entirety and remanded Order No. 745 of the Federal Energy Regulatory Commission ("FERC" or the "Commission"). FERC Order No. 745 requires independent system operators and regional transmission organizations ("ISOs/RTOs") to compensate, in certain circumstances, demand response providers at market prices, i.e., locational marginal price ("LMP"). The D.C. Circuit invalidated FERC Order No. 745 on the grounds that, despite congressional policy in the Energy Policy Act of 2005 ("EPAct 2005") to encourage demand response, FERC acted: (1) beyond its jurisdictional authority because Order No. 745 infringed on the exclusive jurisdiction of the states to regulate the retail electricity market unambiguously set in the Federal Power Act ("FPA"); and, alternatively, (2) arbitrarily and capriciously by implementing Order No. 745 without responding to arguments that such compensation would result in "unjust and discriminatory rates".


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