Supreme Court conservatives question federal rule to cut electricity demand

Everyone at the Supreme Court on Wednesday seemed to agree that it’s a good idea to reduce electricity demand at peak periods.

It was what Justice Stephen Breyer called the problem of “Aug. 4 at 4 p.m.” when air conditioners are running hard.

But the justices appear divided over how best to deal with the problem and the court’s conservatives sounded ready to block a federal energy regulation that would require regional wholesalers to pay large customers to cut back on their use of electricity at peak times.

This so-called “demand response” has been used by some states, including California, and it “will save billions of dollars” for consumers and businesses if it expands nationally, U.S. Solicitor Gen. Donald Verrilli said. Holding down demand “will avoid price spikes and avoid blackouts and brownouts,” he said.

Because electric power cannot be easily stored, and it must be available to all customers at all times, utilities once had little choice but to build more generators or buy expensive power during peak periods.

The idea of offering payments to some customers, including factories, to reduce energy use during peak periods was seen as a way to lower rates across the board and to reduce stress on the power grid.

But the Obama administration’s top courtroom lawyer ran into steadily skeptical questions from the justices on the right who said the law forbids federal regulators “from fiddling around with retail rates,” as Justice Antonin Scalia put it.

It is the latest example of an Obama-era regulation running into trouble with the court’s conservatives, who believe they have a duty to limit the reach of federal power.

In this instance, the Federal Power Act says the Federal Energy Regulatory Commission can regulate wholesale electricity rates, while the states are entrusted to regulate the retail price paid by consumers. Justice Anthony Kennedy said the wholesale and retail rates are linked, but the law “makes a distinction. Can you tell us,” he asked, “what marks the end of federal power and the beginning of local power?”

Verrilli argued that the disputed regulation applies to those in the wholesale market, but Kennedy and Chief Justice John Roberts did not sound convinced.

The liberal justices came to the defense of the federal regulators.

“So what’s the horror here,” asked Justice Sonia Sotomayor, “if this is, in fact, lowering prices?” Both state and federal regulators want to hold down electricity rates, she said.

Paul Clement, who was solicitor general under President George W. Bush, represented power producers, and said that the court needed to hold the line on federal regulation. “They can’t allow Walmart to walk into the wholesale market and buy at retail,” he said.

Last year, the U.S. Court of Appeals surprised the energy industry by blocking the FERC regulation on a 2-1 vote. Two Republican appointees were in the majority, and the one Democratic appointee dissented.

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The Supreme Court agreed to hear the administration’s appeal, but with only eight members. Justice Samuel Alito sat the out the case, presumably because he has stock in a company that could be affected by the ruling.

But to prevail, the administration needs the votes of five of the eight justices. If they split 4-4, the court will uphold the lower court’s decision.

It’s not clear what the effect would be if the court throws out the FERC rule.

The California Public Utilities Commission, which supports the demand-response approach, joined the case on the side of the FERC. Its lawyers told the court that “the owners of traditional fossil-fueled generators are disingenuously pursuing ‘states rights’ in the courts in order to increase their profits by eliminating competition in wholesale energy markets.”

On Twitter: @DavidGSavage.

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