Court vacates FERC Order 745

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WASHINGTON (AP) — A federal appeals court on Friday overturned an electricity regulation in which utilities pay energy users in the wholesale market to reduce consumption.

The court ruled 2-1 that the Federal Energy Regulatory Commission directive encroaches on states' authority to regulate the retail power market, a position taken by utilities, which also oppose the regulation on grounds that it is too generous to major energy users.

In an approach known as demand response, electricity users are paid to reduce their consumption in response to rising prices.

The appeals court says demand response is part of the retail market because it involves retail customers, their decision whether to purchase at retail and the levels of retail electricity consumption.

The court rejected FERC's argument that the agency's actions are consistent with congressional policy to remove barriers in the wholesale energy markets.

"If anything, the policy statement supports the opposite conclusion, that Congress intended demand response resources to be regulated by states, as part of the retail market," said the opinion by appeals Judge Janice Rogers Brown. Judge Laurence Silberman joined in the opinion.

In dissent, Judge Harry Edwards said the majority's views are inconsistent with the law and at odds with other court rulings. Edwards called the regulation "a promising rule of national significance, promulgated by the agency that has been authorized by Congress to address the matters in issue."

FERC regulates the wholesale energy market; states regulate the retail market. FERC spokeswoman Tamara Young-Allen said Friday the agency is reviewing the decision to decide how to respond to the ruling.

As the U.S. advances into a "clean energy economy," demand response should play an increasing role in how electricity is produced, delivered and consumed, said John Finnigan, lead counsel for the Environmental Defense Fund, an environmental group that supports demand response. The judicial ruling stymies that growth, Finnigan said.

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