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Supreme Court upholds Obama's energy regulations to help conserve power in peak periods

In a victory for environmentalists and the Obama administration, the Supreme Court ruled Monday that federal energy regulators may press for lower electric rates for businesses, colleges and other large consumers who agree to conserve power during peak periods.

The justices in a 6-2 decision said these so-called "demand response" rates for wholesale power do not intrude on the authority of state utility regulators.

Environmentalists say this approach to setting electricity charges will conserve energy and reduce the need for more fossil-burning power plants. Consumers will benefit as well through lower rates, they say, because the electricity used during peak demand periods is the most costly. If utilities can avoid using this very expensive power, they can reduce their rates overall to customers.

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But a group of power producers who stood to lose money if peak usage fell went to court to challenge the new rules. They won before a conservative panel of the U.S. Court of Appeals in Washington, which said the Federal Energy Regulatory Commission had exceeded its authority.

The Supreme Court disagreed Monday and said the rules were within the authority of the federal agency. Traditionally, the federal government may regulate wholesale prices, while the states set retail rates for electricity.

Justice Elena Kagan, speaking for the court, said FERC's demand-response rules are directed at wholesale power and do not directly regulate retail rates. They will also protect the reliability of the electric grid, she said.

They "arose because whole market operators can sometimes — say, on a muggy August day — offer electricity both more cheaply and more reliably by paying users to dial down their consumption than by paying power plants to ramp up their production," she said. Blocking the use of this approach would mean "preventing all use of a tool that no one disputes will curb prices and enhance reliability in the wholesale electricity market."

Her opinion was joined by all except Justices Antonin Scalia and Clarence Thomas. Justice Samuel A. Alito Jr. sat out the case, apparently because he owns stock in one of the affected companies.

Environmentalists called the ruling a win for conservation and clean energy.

"Demand response is helping millions of Americans get low-cost, clean and reliable electricity," said Fred Krupp, president of the Environmental Defense Fund. "Today's ruling will help expand customer choice and solidify demand response as a crucial part of our clean energy future."

On Twitter: @DavidGSavage

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