D.C. Circuit Court vacates FERC Order No. 745 on demand response compensation, determining that FERC does not have jurisdiction.

On May 23, 2014, the U.S. Court of Appeals for the D.C. Circuit Court issued a decision in Electric Power Supply Association v. FERC (EPSA) vacating and remanding the Federal Energy Regulatory Commission’s (FERC’s or Commission’s) Order No. 745, which provides compensation for demand response resources that participate in the energy markets administered by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). The decision holds that FERC did not have jurisdiction under the Federal Power Act (FPA) to issue Order No. 745 because demand response is part of the retail market, which is exclusively within the states’ jurisdiction to regulate. Furthermore, the court holds that even if FERC did have jurisdiction under the FPA to issue Order No. 745, the Order would still fail as arbitrary and capricious because FERC failed to properly consider concerns of the petitioner and other parties that Order No. 745 would result in unjust and unreasonable rates because it would overcompensate demand response resources.