ORAL ARGUMENT HAS NOT BEEN SCHEDULED 

In the United States Court of Appeals

for the District of Columbia Circuit 

Nos. 11-1486, et al. 

__________ 

ELECTRIC POWER SUPPLY ASSOCIATION, ET AL., 

Petitioners, 

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

Respondent. 

__________ 

ON PETITIONS FOR REVIEW OF ORDERS OF THE 

FEDERAL ENERGY REGULATORY COMMISSION

__________ 

BRIEF FOR RESPONDENT 

FEDERAL ENERGY REGULATORY COMMISSION 

__________ 

MICHAEL A. BARDEE

GENERAL COUNSEL

ROBERT H. SOLOMON

SOLICITOR

HOLLY E. CAFER

ATTORNEY

FOR RESPONDENT

FEDERAL ENERGY REGULATORY 

COMMISSION

WASHINGTON, D.C. 20426 

AUGUST 28, 2012 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 1 of 115
CIRCUIT RULE 28(a)(1) CERTIFICATE 

A. Parties and Amici 

The parties before this Court are identified in the brief of Petitioners Electric 

Power Supply Association, American Public Power Association, National Rural 

Electric Cooperative Association, Old Dominion Electric Cooperative, and Edison 

Electric Institute. Robert Borlick, Joseph Bowring, James Bushnell and other 

economists appear before this Court as amici curiae. 

B. Rulings Under Review

1. Demand Response Compensation in Organized Wholesale Energy 

Markets, Order No. 745, Final Rule, FERC Stats. & Regs. ¶ 31,322 (Mar. 

15, 2011), R. 223, JA ____; and 

2. Demand Response Compensation in Organized Wholesale Energy 

Markets, Order No. 745-A, Order on Rehearing and Clarification, 137 

FERC ¶ 61,215 (Dec. 15, 2011), R. 266, JA ____.

C. Related Cases 

The Electric Power Supply Association, a petitioner here, and New England 

Power Generators Association, Inc., have filed a petition for review of agency 

orders in a proceeding concerning ISO New England, Inc.’s compliance with the 

orders on review here. Electric Power Supply Ass’n v. FERC, No. 12-1306 (D.C. 

Cir. filed July 16, 2012). By order of August 23, 2012, this Court granted the 

petitioners’ unopposed motion to hold that case in abeyance pending the outcome 

of the instant case. 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 2 of 115
ii

Counsel is not aware of any other related cases before this or any other 

Court. 

/s/ Holly E. Cafer

Holly E. Cafer 

Attorney 

August 28, 2012 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 3 of 115
TABLE OF CONTENTS

 PAGE

STATEMENT OF THE ISSUES...........................................................1 

COUNTER-STATEMENT REGARDING JURISDICTION...........................2 

STATUTORY AND REGULATORY PROVISIONS..................................3 

INTRODUCTION............................................................................3 

STATEMENT OF THE FACTS............................................................7 

I. STATUTORY AND REGULATORY FRAMEWORK........................7 

II. DEMAND RESPONSE IN ORGANIZED WHOLESALE ENERGY 

 MARKETS.............................................................................9 

 A. Organized Wholesale Energy Markets......................................9 

B. Demand Response Participation In Organized 

Wholesale Markets...........................................................11 

III. THE COMMISSION’S PROCEEDINGS ON REVIEW......................14 

 A. Order No. 745 Rulemaking.................................................14 

 B. Order No. 745-A Rehearing Order........................................18 

SUMMARY OF ARGUMENT............................................................20 

ARGUMENT.................................................................................23 

I. STANDARD OF REVIEW........................................................23 

II. THE COMMISSION HAS JURISDICTION TO SET MARKET 

 RULES, INCLUDING COMPENSATION, FOR DEMAND 

 RESPONSE RESOURCES IN WHOLESALE 

ENERGY MARKETS...............................................................26 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 4 of 115
TABLE OF CONTENTS

 PAGE

 A. States Retain Full Authority To Offer Retail Demand 

 Response Programs..........................................................26 

 B. Demand Response Participation In Wholesale 

 Energy Markets Falls Within FERC Jurisdiction As A 

 Practice “Affecting” Jurisdictional Rates.................................32 

 1. Demand response resources participating in wholesale 

 energy markets directly affect wholesale energy rates..........32 

 2. The Commission’s interpretation of its Federal Power Act 

 jurisdiction is reasonable and consistent with this Court’s 

 precedent...............................................................34 

III. CALIFORNIA’S COST ALLOCATION CHALLENGE IS 

 PREMATURE AND SHOULD BE DISMISSED..............................40 

IV. ORDER NO. 745’S DEMAND RESPONSE REFORMS ARE VITAL 

 TO OVERCOME CONTINUING BARRIERS TO DEMAND 

 RESPONSE PARTICIPATION IN WHOLESALE MARKETS.............45 

 A. The Commission Made The Required Statutory 

 Findings........................................................................46 

 B. Substantial Record Evidence Supports The Commission’s 

 Findings As To The Need For Further Reform...........................48 

V. FERC’S DIRECTIVE REQUIRING COMPARABLE, 

NON-DISCRIMINATORY COMPENSATION FOR QUALIFIED 

DEMAND RESPONSE RESOURCES IS REASONABLE AND 

 SUPPORTED BY SUBSTANTIAL EVIDENCE..............................54 

 A. LMP Is A Reasonable Choice Among Alternative Compensation 

 Approaches...................................................................54 

ii

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 5 of 115
TABLE OF CONTENTS

 PAGE

 B. Paying LMP To Demand Response Resources That Satisfy 

 The Two Eligibility Requirements Is Appropriate......................59 

 1. Generators overlook the significance of the balancing 

 and net benefits tests.................................................59 

 2. Qualified demand response resources are similarly 

 situated with supply resources in wholesale energy 

 markets.................................................................62 

 3. Paying qualified demand response resources LMP does 

 not result in a subsidy or overcompensation......................64 

 4. Paying qualified demand response resources LMP results 

 in additional benefits to organized wholesale 

energy markets........................................................69 

 C. The Commission Adequately Explained Its Decision To 

 Require A More Uniform Approach To Demand Response 

 Compensation..................................................................73 

VI. ASSUMING JURISDICTION, ORDER NO. 745’S COST 

 ALLOCATION APPROACH IS REASONABLE AND WELL- 

 SUPPORTED BY THE RECORD................................................77 

CONCLUSION..............................................................................80 

iii

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 6 of 115
TABLE OF AUTHORITIES

COURT CASES: PAGE

Abbott Labs. v. Gardner, 

 387 U.S. 136 (1967).................................................................42 

Associated Gas Distribs. v. FERC, 

 824 F.2d 981 (D.C. 1987)..........................................................24 

Blumenthal v. FERC, 

 552 F.3d 875 (D.C. Cir. 2009)................................................23, 73 

California Indep. Sys. Operator Corp. v. FERC, 

 372 F.3d 395 (D.C. Cir. 2004).............................................24, 33-34 

Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 

467 U.S. 37 (1984)..............................................................23, 24 

City of Las Vegas v. Lujan, 

 891 F.2d 927 (D.C. Cir. 1989).....................................................45 

Clean Air Implementation Project v. EPA, 

 150 F.3d 1200 (D.C. Cir. 1998)...................................................44 

Cogeneration Ass’n of Cal. v. FERC, 

 525 F.3d 1279 (D.C. Cir. 2008)...............................................25, 58 

“Complex” Consol. Edison Co. of New York, Inc. v. FERC, 

165 F.3d 992, 1013 (D.C. Cir. 1999)..............................................63

*Connecticut Dep’t of Pub. Util. Control v. FERC, 

 569 F.3d 477 (D.C. Cir. 2009).....................................8, 23, 35-37, 40 

Consolidated Edison Co. v. FERC, 

 510 F.3d 333 (D.C. Cir. 2007).....................................................72 

______________________________________ 

* Cases chiefly relied upon are marked with an asterisk. 

iv

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 7 of 115
TABLE OF AUTHORITIES

COURT CASES: PAGE

Council of the City of New Orleans v. FERC, 

 No. 11-1043 (D.C. Cir. Aug. 14, 2012)..........................................75 

Domtar Me. Corp. v. FERC, 

 347 F.3d 304 (D.C. Cir. 2003).................................................44-45 

*DTE Energy Co. v. FERC, 

 394 F.3d 954 (D.C. Cir. 2005)....................................................43 

Electricity Consumers Res. Council v. FERC, 

 407 F.3d 1232 (D.C. Cir. 2005)..............................................25, 76 

Elizabethtown Gas Co. v. FERC, 

 10 F.3d 866 (D.C. Cir. 1993).......................................................57 

Entergy Servs. v. FERC, 

 391 F.3d 1240 (D.C. Cir. 2004)...................................................29 

ExxonMobil Gas Mktg. Co. v. FERC, 

 297 F.3d 1071 (D.C. Cir. 2002)...............................................24, 25 

FDA v. Brown & Williamson Tobacco Corp., 

 529 U.S. 120 (2000).................................................................34 

Florida Gas Transmission Co. v. FERC, 

 604 F.3d 636 (D.C. Cir. 2010).................................................68-69 

*Florida Mun. Power Ag. v. FERC, 

 315 F.3d 362 (D.C. Cir. 2003)................................................25, 63 

Florida Mun. Power Ag. v. FERC, 

 602 F.3d 454 (D.C. Cir. 2010).....................................................25 

FPC v. Conway Corp., 

 426 U.S. 271 (1976)............................................................52, 72 

v

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 8 of 115
TABLE OF AUTHORITIES

COURT CASES: PAGE

FPC v. Hope Natural Gas Co., 

 320 U.S. 591 (1944)............................................................72-73 

FPC v. Sierra Pacific Power Co., 

 350 U.S. 348 (1956).................................................................72 

Friends of Keesville, Inc. v. FERC, 

 859 F.2d 230 (D.C. Cir. 1988).....................................................44 

Groton v. FERC, 

 587 F.2d 1296 (D.C. Cir. 1978)...........................................35-36, 37 

Gulf States Util. Co. v. FPC, 

 411 U.S. 747 (1973)...................................................................8 

Illinois Brick Co. v. Illinois, 

 431 U.S. 720 (1977).................................................................58 

Illinois Commerce Comm’n v. FERC, 

 576 F.3d 470 (7th Cir. 2009).......................................................78 

*Indiana Util. Reg. Comm’n v. FERC, 

 668 F.3d 735 (D.C. Cir. 2012)................................4, 13, 14, 29, 34, 75 

Marsh v. Oregon Nat. Resources Council, 

 490 U.S. 360 (1989).................................................................59 

Midwest ISO Transmission Owners v. FERC, 

 373 F.3d 1361 (D.C. Cir. 2004)....................................................78 

Mississippi Industries v. FERC, 

 808 F.2d 1525 (D.C. Cir. 1987)...................................................35 

Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of 

Snohomish County, 

 554 U.S. 527 (2008)............................................9, 10, 24, 58, 72-73 

vi

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 9 of 115
TABLE OF AUTHORITIES

COURT CASES: PAGE

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 

 463 U.S. 29 (1983)..................................................................23 

NAACP v. FPC, 

 425 U.S. 662 (1976)..................................................................8 

Nat’l Ass’n of Broadcasters v. FCC, 

 740 F.2d 1190 (D.C. Cir. 1984)...................................................76 

Nat’l Ass’n of Reg. Util. Comm’nrs v. FERC, 

 475 F.3d 1277 (D.C. Cir. 2007)..................................30, 31, 38, 66-67 

Nat’l Fuel Gas Supply Corp. v. FERC, 

 468 F.3d 831 (D.C. Cir. 2006).....................................................53 

New Mexico Attorney General v. FERC, 

 466 F.3d 120 (D.C. Cir. 2006).....................................................43 

*New York v. FERC, 

 535 U.S. 1 (2002).............................................7-9, 23, 31-32, 47, 54 

New York Regional Interconnect v. FERC, 

 634 F.3d 581 (D.C. Cir. 2011).....................................................10 

Niagara Mohawk Power Corp. v. FERC, 

 452 F.3d 822 (D.C. Cir. 2006)...................................................7, 30 

Northern States Power Co. v. FERC, 

 30 F.3d 177 (D.C. Cir. 1994)..................................................24, 79 

OXY USA, Inc. v. FERC, 

 64 F.3d 649 (D.C. Cir. 1995)......................................................73 

Papago Tribal Util. Auth. v. FERC, 

 628 F.2d 235 (D.C. Cir. 1980).................................................42-43 

vii

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 10 of 115
TABLE OF AUTHORITIES

COURT CASES: PAGE

Permian Basin Area Rate Cases, 

 390 U.S. 747 (1968)............................................................25, 48 

PNGTS Shippers’ Group v. FERC, 

 592 F.3d 132 (D.C. Cir. 2010).....................................................44 

Public Utils. Comm’n of California v. FERC, 

 367 F.3d 925 (D.C. Cir. 2004).......................................................8 

*Sacramento Mun. Util. Dist. v. FERC, 

 616 F.3d 520 (D.C. Cir. 2010)............................................10, 37, 68 

Sithe/Independence Power Partners, L.P. v. FERC, 

 285 F.3d 1 (D.C. Cir. 2002)........................................................78 

Toca Producers v. FERC, 

 411 F.3d 262 (D.C. Cir. 2005)................................................40, 42 

*Transmission Access Policy Study Grp. v. FERC, 

 225 F.3d 667 (D.C. Cir. 2000).......................................23, 43, 47, 78 

Transmission Ag. of N. Cal. v. FERC, 

 628 F.3d 538 (D.C. Cir. 2010).....................................................39 

United Distrib. Cos. v. FERC, 

 88 F.3d 1105 (D.C. Cir. 1996).................................................38-39 

Wisconsin Gas Co. v. FERC, 

 770 F.2d 1144 (D.C. Cir. 1985)....................................................47 

Wisconsin Pub. Power, Inc. v. FERC, 

 493 F.3d 239 (D.C. Cir. 2007).................................................24-25 

Wisconsin Valley Improvement Co. v. FERC, 

 236 F.3d 738 (D.C. Cir. 2001).............................................25, 58-59 

viii

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 11 of 115
TABLE OF AUTHORITIES

ADMINISTRATIVE CASES: PAGE

Cal. Indep. System Op. Corp., 

 137 FERC ¶ 61,217 (2011).........................................................42 

Credit Reforms in Organized Wholesale Electric Markets, 

Order No. 741, 133 FERC ¶ 61,060 (2010)......................................28 

Demand Response Compensation in Organized Wholesale Energy Markets, 

 Notice of Proposed Rulemaking, 75 Fed. Reg. 15,362 (2010), 

 FERC Stats. & Regs. ¶ 32,656 (2010)......................14, 46, 49-53, 56, 76 

Demand Response Compensation in Organized Wholesale Energy Markets, 

Supplemental Notice of Proposed Rulemaking and 

Notice of Technical Conference, 75 Fed. Reg. 47,499 

(Aug. 6, 2010), 132 FERC ¶ 61,094 (2010)..................................15, 53 

Demand Response Compensation in Organized Wholesale Energy Markets, 

 Order No. 745, Final Rule, FERC Stats. & Regs. ¶ 31,322 (2011), 

on reh’g and clarification, Order No. 745-A, 

137 FERC ¶ 61,215 (2011)..........................................4-6, 10-11, 15-19, 

 26-28, 30, 32-33, 35-41, 

 47-72, 74, 76-79 

EnergyConnect, Inc., 

 130 FERC ¶ 61,031 (2010).........................................................39 

New England Power Pool, 

 101 FERC ¶ 61,344 (2002).........................................................72 

PJM Industrial Customer Coalition v. PJM Interconnection, LLC, 

 121 FERC ¶ 61,315 (2007)....................................................51, 67 

ix

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 12 of 115
TABLE OF AUTHORITIES

ADMINISTRATIVE CASES: PAGE

Promoting Wholesale Competition Through Open Access Nondiscriminatory 

Transmission Services by Public Utilities; Recovery of Stranded Costs by 

Public Utilities and Transmitting Utilities, 

Order No. 888, FERC Stats. & Regs. ¶ 31,036, 61 Fed. Reg. 21,540 

(1996), clarified, 76 FERC ¶ 61,009 and 76 FERC ¶ 61,347 (1997), 

on reh’g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048, 62 Fed. 

Reg. 12,274, on reh’g, Order No. 888-B, 81 FERC ¶ 61,248, 62 Fed. 

Reg. 64,688 (1997), on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 

(1998), aff’d in relevant respect, Transmission Access Policy Study 

Grp. v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom., 

New York v. FERC, 535 U.S. (2002)............................................9, 43 

Preventing Undue Discrimination and Preference in Transmission Service, 

 Order No. 890, FERC Stats. & Regs. ¶ 31,241 (2007), order on 

 reh’g, Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 (2007), 

 order on reh’g and clarification, Order No. 890-B, 123 FERC 

 ¶ 61,299 (2008), order on reh’g, Order No. 890-C, 126 FERC 

 ¶ 61,228 (2009), order on clarification, Order No. 890-D, 129 

 FERC ¶ 61,126 (2009).........................................................11, 12 

Regional Transmission Organizations, 

 Order No. 2000, FERC Stats. & Regs., Regs. Preambles ¶ 31,089 

 (1999), order on reh’g, Order No. 2000-A, FERC Stats. & Regs., 

 Regs. Preambles ¶ 31,092 (2000), appeal dismissed sub nom. Public 

 Util. District No. 1 v. FERC, 272 F.3d 607 (D.C. Cir. 2001)................10 

Wholesale Competition in Regions with Organized Electric Markets, 

 Order No. 719, 73 Fed. Reg. 64,100 (2008), FERC Stats. & 

Regs. ¶ 31,281 (2008), order on reh’g, Order No. 719-A, 74 Fed. Reg. 

37,776 (2009), FERC Stats. & Regs. ¶ 31,292 (2009), order on 

 reh’g, Order No. 719-B, 129 FERC ¶ 61,252 

(2009)...................................................12-13, 18, 33, 63, 70, 74, 75

x

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xi

TABLE OF AUTHORITIES

STATUTES: PAGE

 

Administrative Procedure Act 

 5 U.S.C. § 706(2)(A)................................................................23 

Energy Policy Act 

 Section 1252(f), 16 U.S.C. § 2642............................................11, 40 

Federal Power Act 

 Section 201, 16 U.S.C. § 824..................................................18, 34 

 Section 201(a), 16 U.S.C. § 824(a)................................................31 

Section 201(b), 16 U.S.C. § 824(b).................................................7 

 Section 205, 16 U.S.C. § 824d.........................................7, 18, 32, 34 

 Section 206, 16 U.S.C. § 824e...................2, 5, 7-8, 15, 18, 32, 34, 36, 46 

 Section 313(b), 16 U.S.C. § 825l(b)...........................2, 3, 25, 29, 62, 77 

28 U.S.C. § 1346(a)(2).....................................................................71 

REGULATIONS: 

18 C.F.R. § 35.28(b)(4).....................................................................12 

18 C.F.R. § 35.28(g)(1)(i)(A).........................................................13, 74 

18 C.F.R. § 35.28(g)(1)(iii)........................................................13, 28-29 

18 C.F.R. § 35.28(v)..........................................................................3 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 14 of 115
GLOSSARY 

Amici Group of economists who submitted a brief as 

amici curiae in support of petitioners, including 

Robert Borlick, Joseph Bowring, James Bushnell, 

and others 

California Petitioners California Independent System 

Operator Corporation and California Public 

Utilities Commission 

Commission or FERC Federal Energy Regulatory Commission 

FPA Federal Power Act 

Generators Petitioners Electric Power Supply Association, 

American Public Power Association, National 

Rural Electric Cooperative Association, Old 

Dominion Electric Cooperative and Edison 

Electric Institute 

JA Joint Appendix 

LMP Locational marginal price: the market clearing 

price as calculated by a System Operator at 

particular locations within the System Operator’s 

market footprint 

Order No. 719 Wholesale Competition in Regions with Organized 

Electric Markets, Order No. 719, 73 Fed. Reg. 

64,100 (Oct. 28, 2008), FERC Stats. & Regs. ¶ 

31,281 (2008), JA ____ 

Order No. 719-A Wholesale Competition in Regions with Organized 

Electric Markets, Order No. 719-A, 74 Fed. Reg. 

37,776 (July 29, 2009), FERC Stats. & Regs. ¶ 

31,292 (2009), JA ____ 

Order No. 745 Demand Response Compensation in Organized 

Wholesale Energy Markets, Order No. 745, Final 

Rule, FERC Stats. & Regs. ¶ 31,322 (Mar. 15, 

2011), R. 223, JA ____

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 15 of 115
ii

Order No. 745-A Demand Response Compensation in Organized 

Wholesale Energy Markets, Order No. 745-A, 

Order on Rehearing and Clarification, 137 FERC ¶ 

61,215 (Dec. 15, 2011), R. 266, JA ____ 

PPL Jointly, intervenors in support of petitioners, 

consisting of PPL Brunner Island, LLC; PPL 

Electric Utilities Corporation; PPL EnergyPlus, 

LLC; PPL Holtwood, LLC; PPL Maine, LLC, PPL 

Martins Creek, LLC; PPL Montour, LLC; PPL 

Susquehanna, LLC; Lower Mount Bethel Energy, 

LLC; and PJM Power Providers Group 

Proposed Rule Demand Response Compensation in Organized 

Wholesale Energy Markets, Notice of Proposed 

Rulemaking, 75 Fed. Reg. 15,362 (Mar. 29, 2010), 

FERC Stats. & Regs. ¶ 32,656 (2010), R. 2, 

JA ____ 

R. Indicates an item in the certified index to the record 

Supplemental Proposed Rule Demand Response Compensation in Organized 

Wholesale Energy Markets, 75 Fed. Reg. 47,499 

(Aug. 6, 2010), 132 FERC ¶ 61,094 (2010), 

JA ____ 

System Operator Generally, an Independent System Operator or 

Regional Transmission Organization 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 16 of 115
In the United States Court of Appeals

for the District of Columbia Circuit 

Nos. 11-1486, et al. 

__________ 

ELECTRIC POWER SUPPLY ASSOCIATION, ET AL., 

Petitioners, 

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

Respondent. 

__________ 

ON PETITIONS FOR REVIEW OF ORDERS OF THE 

FEDERAL ENERGY REGULATORY COMMISSION

__________ 

BRIEF FOR RESPONDENT 

FEDERAL ENERGY REGULATORY COMMISSION 

_______________ 

STATEMENT OF THE ISSUES 

The Federal Energy Regulatory Commission (“Commission” or “FERC”) 

issued a rulemaking requiring that demand-side resources, like supply-side 

resources, be compensated for the value of the contributions they make as 

participants in organized wholesale energy markets. The issues presented for this 

Court’s review are: 

1) Whether the Commission’s Federal Power Act (“FPA”) jurisdiction over 

wholesale sales of electric energy, as well as practices directly affecting the rates 

for such sales, permits it to set compensation and other market rules for demand 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 17 of 115
response resources participating in organized wholesale energy markets. (raised by 

Generators) 

2) Whether the Commission, consistent with its statutory responsibilities and 

recent congressional policy, adequately demonstrated the need for a rulemaking 

that removes barriers to demand response participation in organized wholesale 

energy markets. (raised by Generators and California) 

3) Whether the Commission’s decision to compensate demand response 

resources participating in organized wholesale energy markets, under specified 

conditions, at the same market price offered to traditional generation resources, 

offers all market participants a reasonable and non-discriminatory rate under FPA 

sections 205 and 206, 16 U.S.C. §§ 824d-e, and is adequately supported by 

substantial record evidence. (raised by Generators) 

4) Assuming jurisdiction, whether the Commission reasonably required the 

allocation of costs associated with demand response participation in organized 

wholesale energy markets to all entities who benefit from lower market prices 

produced by dispatching demand response. (raised by California) 

COUNTER-STATEMENT REGARDING JURISDICTION 

Petitioners invoke this Court’s jurisdiction under section 313(b) of the 

Federal Power Act, 16 U.S.C. § 825l(b). But petitioners California Independent 

System Operator Corporation and California Public Utilities Commission 

2

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 18 of 115
(together, “California”) raise claims concerning cost allocation that are premature, 

at best, and should be dismissed for failure to satisfy the jurisdictional prerequisites 

of ripeness and standing. See infra Argument, Pt. III. The Commission’s orders 

announce only a general guideline and defer resolution of California’s specific 

concerns to compliance proceedings, which remain ongoing. Further, petitioners 

failed properly to preserve two issues for this Court’s review. See infra p. 29 

(impact of the orders on state demand response programs), p. 77 (support for cost 

allocation guideline). Petitioners have thus deprived the Court of jurisdiction on 

those issues. See 16 U.S.C. § 825l(b) (limiting the Court’s jurisdiction to only 

those objections “urged before the Commission in the application for rehearing 

unless there is reasonable ground for failure so to do”). 

STATUTORY AND REGULATORY PROVISIONS 

The pertinent statutes and regulations are contained in the Addendum. The 

petitioners seek review of a Commission rulemaking that added the regulation 

found at 18 C.F.R. § 35.28(g)(1)(v) (demand response compensation in energy 

markets). 

INTRODUCTION 

This case arises from a series of Commission initiatives to ensure that rates 

in organized wholesale markets subject to its jurisdiction are reasonable and nondiscriminatory. Its latest initiative, a rulemaking announced in Order No. 745, 

3

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 19 of 115
removes unduly discriminatory barriers to participation in those markets by 

demand-side resources and allows those resources to compete on a comparable 

basis with traditional supply-side, i.e. generation, resources. Both the 

Commission’s statutory responsibilities under the Federal Power Act, and recent 

congressional policy promoting the development of demand response resources, 

prompt the Commission’s efforts. The orders on review here specifically address 

demand response, a service whereby electricity consumers reduce their 

consumption from normal usage levels in response to price signals. 

The Commission previously opened Commission-jurisdictional organized 

wholesale markets to demand response participation while not intruding upon state 

demand response initiatives. See Indiana Util. Reg. Comm’n v. FERC, 668 F.3d 

735 (D.C. Cir. 2012) (dismissing in part and denying in part appeal of earlier 

FERC demand response rules opening markets to aggregators of retail customers, 

unless prohibited by the retail regulatory authority). Now the Commission requires 

that when an eligible demand response resource chooses to participate in an 

organized wholesale energy market, and it satisfies balancing capability and costeffectiveness tests, the market administrator (known as Regional Transmission 

Organizations or Independent System Operators, collectively “System Operators”) 

must compensate that resource at the same price generation resources receive, the 

market price. Demand Response Compensation in Organized Wholesale Energy 

4

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 20 of 115
Markets, Order No. 745, Final Rule, FERC Stats. & Regs. ¶ 31,322 (Mar. 15, 

2011) (promulgating 18 C.F.R. § 35.28(g)(1)(v)) (“Order No. 745”), R. 223, 

JA ____, on reh’g and clarification, Order No. 745-A, 137 FERC ¶ 61,215 (Dec. 

15, 2011) (“Order No. 745-A”), R. 266, JA ____. 

A group of trade associations1

 representing interests of generators and 

utilities (collectively, “Generators”) challenges the Commission’s jurisdiction to 

enact these reforms, as well as the Commission’s ultimate selection of the market 

price as a just and reasonable price. As to jurisdiction, the Generators contend that 

the Federal Power Act reserves to the States – who do not join the Generators on 

this issue – exclusive authority to regulate transactions involving demand response 

resources. But in each of its orders directing reforms to market rules governing 

demand response, the Commission has made plain that its focus is narrow and that 

it addresses only wholesale demand response, i.e., demand-side resources that 

participate directly in organized wholesale markets. Order No. 745 P 9, JA ____. 

States remain free to authorize and oversee retail demand response programs. 

On the merits of demand response compensation reform, petitioners claim 

that the Commission failed to carry its burden of demonstrating, under section 206 

of the Federal Power Act, 16 U.S.C. § 824e, that reform is necessary. Generators 

 

1

 This group consists of the Electric Power Supply Association, American Public 

Power Association, National Rural Electric Cooperative Association, Old 

Dominion Electric Cooperative and Edison Electric Institute.

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claim that the Commission failed to demonstrate that the new compensation 

method is just and reasonable and does not unduly discriminate against traditional 

supply-side resources in the wholesale markets. California claims that the 

Commission has not demonstrated the need for a new approach to cost allocation. 

The Commission denied these challenges. Existing barriers to demand response 

participation in wholesale markets, including inadequate compensation, motivated 

the Commission to exercise its authority to set new rates. Paying qualified demand 

response resources the market price, under the balancing and cost-effectiveness 

conditions defined in the orders, will neither overcompensate demand response 

resources nor under-compensate generators. Substantial record evidence, 

including expert studies and testimony, supports the Commission’s approach. 

Demand response participation in wholesale energy markets also triggers the 

need for a method to allocate the costs of obtaining demand response resources. 

Before this rulemaking, the Commission had approved various methods for cost 

allocation in certain organized wholesale energy markets, including that 

administered by the California System Operator. In the orders on review, the 

Commission adopted a general principle that the costs of obtaining demand 

response resources should be allocated proportionally to all customers who benefit 

from the reduced prices caused by the dispatch of demand response resources. 

Order No. 745 P 102, JA ____. California now challenges the Commission’s 

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support for this guideline, and the move toward greater uniformity. But the 

Commission deferred evaluation of specific cost allocation methods to individual 

compliance proceedings, for all System Operators. The California System 

Operator has proposed a revised cost allocation method, and the Commission’s 

proceedings concerning that proposal remain ongoing at this time. 

STATEMENT OF THE FACTS 

I. STATUTORY AND REGULATORY FRAMEWORK 

Section 201(b) of the Federal Power Act confers upon the Commission 

jurisdiction over all rates, terms and conditions of electric transmission service and 

sales of electric energy at wholesale by public utilities in interstate commerce. 16 

U.S.C. § 824(b). This grant of jurisdiction is comprehensive and exclusive. See 

generally New York v. FERC, 535 U.S. 1 (2002). Under section 201(b) of the 

FPA, 16 U.S.C. § 824(b), the “States retain jurisdiction over retail sales of 

electricity and over local distribution facilities.” Niagara Mohawk Power Corp. v. 

FERC, 452 F.3d 822, 824 (D.C. Cir. 2006). 

Under FPA sections 205 and 206, 16 U.S.C. §§ 824d-e, the Commission has 

an obligation to ensure that all rates by a public utility “for or in connection with” 

the transmission or sale of electric energy subject to the Commission’s jurisdiction 

are just and reasonable and not unduly discriminatory or preferential. As 

particularly relevant here, those sections also give the Commission jurisdiction 

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over all rules, regulations, practices, or contracts “affecting” such jurisdictional 

rates and services. Id.; see Connecticut Dep’t of Pub. Util. Control v. FERC, 569 

F.3d 477 (D.C. Cir. 2009) (affirming FERC’s interpretation of practices 

“affecting” rates as including certain generation-related rules). 

Section 206 of the FPA, 16 U.S.C. § 824e, also authorizes the Commission 

to investigate whether existing rates and practices remain appropriate. If the 

Commission, on its own initiative or on a third-party complaint, finds that an 

existing rate or practice is “unjust, unreasonable, unduly discriminatory or 

preferential,” it must determine and set a new just and reasonable rate or practice. 

FPA § 206(a), 16 U.S.C. § 824e(a). 

The FPA generally charges the Commission to employ its authority “to 

provide effective federal regulation of the expanding business of transmitting and 

selling electric power in interstate commerce.” New York, 535 U.S. at 6 (quoting 

Gulf States Util. Co. v. FPC, 411 U.S. 747, 758 (1973)). The Commission’s 

responsibility under the FPA is to recognize and balance supplier and consumer 

interests; the statute’s primary purpose is “to encourage the orderly development” 

of electricity supplies “at reasonable prices.” Public Utils. Comm’n of California 

v. FERC, 367 F.3d 925, 929 (D.C. Cir. 2004) (quoting NAACP v. FPC, 425 U.S. 

662, 670 (1976)). 

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II. DEMAND RESPONSE IN ORGANIZED WHOLESALE ENERGY 

MARKETS 

A. Organized Wholesale Energy Markets 

This Court is familiar with the Commission’s actions in recent years to 

strengthen competition in wholesale energy markets. Briefly, in its 1996 

rulemaking in Order No. 888,2

 the Commission required utilities to unbundle their 

electricity generation and transmission services and to file new open access tariffs 

guaranteeing non-discriminatory access to their transmission facilities by 

competing generators. See New York, 535 U.S. at 11-13 (affirming Order No. 

888); cf. Morgan Stanley Capital Grp. Inc. v. Pub. Util. Dist. No. 1 of Snohomish 

County, 554 U.S. 527, 536 (2008) (“the Commission has attempted to break down 

regulatory and economic barriers that hinder a free market in wholesale electricity” 

and “promote competition in those areas of the industry amenable to competition, 

such as the segment that generates electric power”). 

 

2 Promoting Wholesale Competition Through Open Access Nondiscriminatory 

Transmission Services by Public Utilities; Recovery of Stranded Costs by Public 

Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036, 

61 Fed. Reg. 21,540 (1996), clarified, 76 FERC ¶ 61,009 and 76 FERC ¶ 61,347 

(1997), on reh’g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048, 62 Fed. Reg. 

12,274, on reh’g, Order No. 888-B, 81 FERC ¶ 61,248, 62 Fed. Reg. 64,688 

(1997), on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant 

respect, Transmission Access Policy Study Grp. v. FERC, 225 F.3d 667 (D.C. Cir. 

2000), aff’d sub nom., New York v. FERC, 535 U.S. 1.

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With its Order No. 20003

 rulemaking, the Commission encouraged 

development of regional System Operators that administer the transmission grid on 

behalf of transmission-owning members. See Morgan Stanley, 554 U.S. at 536. 

System Operators also run bid-based auction markets for the wholesale sale of 

energy, capacity and ancillary services. See id. at 536-37; see also, e.g., New York 

Regional Interconnect v. FERC, 634 F.3d 581, 583-584 (D.C. Cir. 2011) 

(describing System Operator administration of transmission services). 

The locational marginal price (“LMP”) is the market price used to 

compensate generators in organized wholesale energy markets. Order No. 745 P 2 

n.5, JA ____. This price is “designed to reflect the least-cost of meeting an 

incremental megawatt-hour of demand at each location on the grid, and thus prices 

vary based on location and time.” Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 

520, 524 (D.C. Cir. 2010); see also Order No. 745 P 53, JA ____. “There are 

variations in the way that [System Operators] calculate LMP; however, each 

method establishes the marginal value of resources in that market.” Order No. 745 

P 2 n.5, JA ____. 

 

3 Regional Transmission Organizations, Order No. 2000, FERC Stats. & Regs., 

Regs. Preambles ¶ 31,089 (1999), order on reh’g, Order No. 2000-A, FERC Stats. 

& Regs., Regs. Preambles ¶ 31,092 (2000), appeal dismissed sub nom. Public Util. 

Dist. No. 1 v. FERC, 272 F.3d 607 (D.C. Cir. 2001). 

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B. Demand Response Participation In Organized Wholesale Markets 

 The Commission’s market reforms have increasingly recognized that a 

market functions effectively only when both supply and demand can meaningfully 

participate. See Order No. 745 P 1, JA ____. In the Energy Policy Act of 2005, 

Congress, among many other things, established as “the policy of the United States 

that . . . unnecessary barriers to demand response participation in energy, capacity, 

and ancillary service markets shall be eliminated.” Pub. L. No. 109-58, § 1252(f), 

119 Stat. 594, 965-66 (note 16 U.S.C. § 2642) (2005); see also id. (“It is the policy 

of the United States that time-based pricing and other forms of demand response, 

whereby electricity customers are provided with electricity price signals and the 

ability to benefit by responding to them, shall be encouraged.”). 

Acting pursuant to its duty under the Federal Power Act to ensure just and 

reasonable and not unduly discriminatory rates, and consistent with federal policy, 

the Commission has issued several rulemakings to facilitate the participation of 

demand response resources in providing Commission-jurisdictional services. With 

its Order No. 8904

 rulemaking in 2007, the Commission adopted reforms to allow 

 

4 Preventing Undue Discrimination and Preference in Transmission Service, Order 

No. 890, FERC Stats. & Regs. ¶ 31,241 (2007), order on reh’g, Order No. 890-A, 

FERC Stats. & Regs. ¶ 31,261 (2007), order on reh’g and clarification, Order No. 

890-B, 123 FERC ¶ 61,299 (2008), order on reh’g, Order No. 890-C, 126 FERC ¶ 

61,228 (2009), order on clarification, Order No. 890-D, 129 FERC ¶ 61,126 

(2009). 

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the participation of non-generation resources, including demand response, in 

providing ancillary services, where appropriate, on a comparable basis with 

generation resources. Order No. 890 PP 887-88. The Commission also required 

transmission providers to develop procedures that treat generation, transmission 

and demand response resources comparably for transmission planning purposes. 

Order No. 890-A P 216. 

 In 2008, as part of a package of reforms to improve the operation of 

organized wholesale electric power markets, the Commission adopted in its Order 

No. 719 rulemaking5

 reforms to facilitate the participation of demand response 

resources in those markets. Order No. 719 amended the Commission’s regulations 

to define demand response as “a reduction in the consumption of electric energy by 

customers from their expected consumption in response to an increase in the price 

of electric energy or to incentive payments designed to induce lower consumption 

of electric energy.” 18 C.F.R. § 35.28(b)(4). 

Prior to Order No. 719, the Commission had approved proposals by some 

individual System Operators to allow demand response participation in their 

ancillary services markets. Order No. 719 P 54 n.80, JA ____. But Order No. 719 

 

5 Wholesale Competition in Regions with Organized Electric Markets, Order No. 

719, 73 Fed. Reg. 64,100 (Oct. 28, 2008), FERC Stats. & Regs. ¶ 31,281 (2008), 

JA ____, order on reh’g, Order No. 719-A, 74 Fed. Reg. 37,776 (July 29, 2009), 

FERC Stats. & Regs. ¶ 31,292 (2009), JA ____, order on reh’g, Order No. 719-B, 

129 FERC ¶ 61,252 (2009), JA ____.

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required all System Operators to accept bids from demand response resources in 

ancillary services markets on a basis comparable to other resources, unless such 

participation is prohibited by the relevant retail regulatory authority. Id. PP 47-49 

(promulgating 18 C.F.R. § 35.28(g)(1)(i)(A)) , JA ____-__. Order No. 719 also 

required System Operators to permit an aggregator of retail customers to bid 

demand response on behalf of retail customers directly into the organized 

wholesale markets, again unless the relevant retail regulatory authority does not 

permit a retail customer to participate. Id. P 154, JA ____. See 18 C.F.R. § 

35.28(g)(1)(iii) (aggregator of retail customers). 

In a signal that further reforms may be forthcoming, Order No. 719 also 

required System Operators to study whether additional measures were necessary to 

eliminate barriers to demand response in organized markets. Order No. 719 P 15, 

JA ____. As the Commission explained, “[a]ny reforms must ensure that demand 

response resources are treated on a basis comparable to other resources.” Id. On 

rehearing of Order No. 719, the Commission generally affirmed its jurisdiction, 

under the Federal Power Act, to establish market rules requiring System Operators 

to accept demand response bids in organized wholesale markets. Order No. 719-A 

P 42, JA ____. 

This Court first addressed demand response in organized wholesale markets 

in Indiana Util. Reg. Comm’n v. FERC, 668 F.3d 735 (D.C. Cir. 2012). There, the 

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Court rejected an appeal of FERC orders approving changes to the tariff of PJM 

Interconnection, L.L.C., a System Operator in Mid-Atlantic and Midwestern states, 

establishing protocols for aggregators of retail customers to bid demand response 

into the organized wholesale markets. In so doing, the Court dismissed a related 

challenge to the Commission’s jurisdiction because the petitioning state regulatory 

authority had not properly preserved that issue for review. Id. at 739-40, JA ____. 

III. THE COMMISSION’S PROCEEDINGS ON REVIEW 

A. Order No. 745 Rulemaking 

Following Order No. 719’s requirement for System Operators to report to 

the Commission on additional reforms necessary to eliminate barriers to demand 

response participation in wholesale markets, as well as various Commission reports 

and technical conferences, the Commission issued a notice of proposed rulemaking 

proposing further reforms. See Demand Response Compensation in Organized 

Wholesale Energy Markets, Notice of Proposed Rulemaking, 75 Fed. Reg. 15,362 

(Mar. 29, 2010), FERC Stats. & Regs. ¶ 32,656 (2010) (“Proposed Rule”), R. 2, JA 

____. The Proposed Rule identified two ways demand response can generally 

occur: (1) customers reduce demand by responding to retail rates that are based on 

wholesale prices; and (2) customers offer demand response as a resource in 

organized wholesale markets to balance supply and demand. Id. P 3, JA ___. The 

Proposed Rule explained that, as with Order No. 719, the Commission would 

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address only the second type, demand response participation in wholesale markets. 

Id. 

After an initial round of comments, the Commission issued a Supplemental 

Notice of Proposed Rulemaking and held a technical conference addressing two 

aspects of compensation reform, the net benefits test and cost allocation. See 

Order No. 745 P 16 (citing Demand Response Compensation in Organized 

Wholesale Energy Markets, 75 Fed. Reg. 47,499 (Aug. 6, 2010), 132 FERC ¶ 

61,094 (2010) (“Supplemental Proposed Rule”), JA ____. 

On March 15, 2011, the Commission issued the first order on review here, 

Order No. 745, a final rule amending its regulations regarding demand response 

compensation in the day-ahead and real-time wholesale energy markets. Order No. 

745 P 1, JA____. Acting under FPA section 206, 16 U.S.C. § 824e, the 

Commission held that action was necessary to eliminate unduly discriminatory 

barriers to demand response participation and ensure just and reasonable rates in 

those markets. As relevant to this appeal, Order No. 745 primarily addressed 

compensation levels for qualifying demand response resources and allocation of 

costs associated with compensating demand response resources. It also required 

System Operators to review their current measurement and verification protocols 

and propose any changes necessary to ensure that those protocols adequately 

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capture the performance of participating demand response providers. Id. P 94, JA 

____. 

As to compensation, Order No. 745 required each System Operator in which 

demand response resources participate to pay those resources the market price for 

energy, i.e., the locational marginal price, when two conditions are met. First, the 

demand response resource must have the capability to balance supply and demand 

as an alternative to a generation resource. Id. P 48, JA ____. 

Second, dispatch of the demand response resource must be cost-effective as 

determined by a net benefits test. As the Commission explained, the net benefits 

test is necessary due to the so-called “billing unit effect” of dispatching demand 

response. Order No. 745 P 50, JA ____. Wholesale customers are billed for 

energy based on the units (megawatt hours) of electricity consumed. Id. A 

decrease in total load, resulting from the dispatch of demand response resources, 

can result in an increase in the cost per unit to the remaining wholesale load. Id. 

The net benefits test ensures that the benefit of the reduced LMP that results from 

dispatching demand response resources exceeds the cost of dispatching and paying 

LMP to those resources. Id. P 53, JA ____. Using the guidance in Order No. 745, 

each System Operator will propose a method of calculating a price threshold 

estimate where customer net benefits would occur. Id. PP 79-80, JA ____-___. 

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The Commission also considered, and would have preferred, an approach 

that would integrate the billing unit effect into the real-time operation of the 

wholesale market, because it “has the potential to more precisely identify when 

demand response is cost-effective.” Id. P 78, JA ____. But in light of technical 

barriers to implementation identified by the System Operators, the Commission 

instead directed the System Operators to study and report to the Commission on 

the feasibility of adopting this dispatch algorithm. Id. PP 78, 84, JA ____, ____. 

The difference between the amount owed by the System Operator to 

resources, including demand response resources, and the revenue it derives from 

load, results in a negative balance that must be addressed through cost allocation. 

Id. P 99, JA ____. Order No. 745 adopted a general principle to guide each 

System Operator’s development of a specific cost allocation method: Costs 

associated with demand response compensation must be allocated “proportionally 

to all entities that purchase from the relevant energy market in the area(s) where 

the demand response reduced the market price for energy at the time when the 

demand response is committed or dispatched.” Id. P 102, JA ____. Each System 

Operator must make a compliance filing that either demonstrates that its current 

cost allocation method satisfies this principle, or proposes conforming changes. Id. 

Finally, in response to comments received on the Proposed Rule, the 

Commission confirmed its jurisdiction to establish compensation levels for demand 

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response in organized wholesale energy markets. Id. P 112, JA ____. As the 

Commission had previously explained in Order No. 719-A, the Commission has 

jurisdiction to regulate the market rules under which a System Operator accepts a 

demand response offer into a wholesale market, because those offers and the 

market rules under which they are submitted directly affect wholesale rates. Id. PP 

112-13 (citing Order No. 719-A PP 47, 52, JA ____, ____), JA ____. 

B. Order No. 745-A Rehearing Order 

Numerous entities, offering different perspectives, including competing 

generators, demand response providers, System Operators, and state regulatory 

authorities, filed requests for rehearing and/or clarification of Order No. 745. In 

response, the Commission first confirmed that it has jurisdiction, under FPA 

section 201, 16 U.S.C. § 824, over rates established in organized wholesale energy 

markets. Order No. 745-A P 21, JA ____. Demand response participation in 

those markets, and the governing market rules, fall within the Commission’s 

jurisdiction as practices “affecting” rates under FPA sections 205 and 206, 16 

U.S.C. §§ 824d–e, because they directly affect rates in those markets. Order No. 

745-A P 35, JA ____. The Commission’s rule does not claim jurisdiction over 

demand response at the retail level. Id. P 32, JA ____. 

Describing in detail the dispute among experts as to the appropriate 

compensation level for demand response resources, the Commission affirmed both 

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the need for reform and its selection of the locational marginal price as the 

appropriate compensation for demand response resources that satisfy the balancing 

and cost-effectiveness tests. Id. PP 54-70, JA ____-__. The Commission 

recognized that it had previously allowed a region-specific approach to 

compensation, but confirmed that varying, inadequate compensation levels and 

other barriers to demand response participation necessitated adoption of a more 

uniform approach at this time. Id. PP 72-75, JA ____-__. 

 Both the California System Operator and the California Commission sought 

rehearing of the Commission’s decision to impose a uniform principle requiring 

allocation of costs to all benefitting market participants. California sought an 

immediate ruling that its particular cost allocation method could remain in place. 

Id. P 135, JA ____. The Commission responded that it lacked an adequate record 

to address California’s cost allocation method, and that these issues would be 

addressed in ongoing compliance proceedings. Id. PP 140-41, JA ___. 

Commissioner Moeller dissented from the orders on review. He expressed a 

preference for regional approaches to compensation and advocated for a 

compensation approach for demand response resources that reduces the market 

price by the avoided retail energy purchase price. See, e.g., Order No. 745-A, 

Comm’r Moeller Dissent at 1, JA ____. 

The Generators’ and California’s appeals followed. 

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SUMMARY OF ARGUMENT

The Commission’s reforms in the orders on review do nothing more than 

implement the ordinary ratemaking principles of comparability and nondiscrimination. Generators’ claims mischaracterize both the operation of 

organized wholesale markets and the nature of demand response participation in 

those markets. 

First, Generators’ claim – made without the support of any State – that the 

Commission has crossed the federal/state jurisdictional divide in the Federal Power 

Act rests entirely on the premise that there is only one type of demand response. 

This is wrong. There are two types of demand response: one occurs at the retail 

level and the second occurs at the wholesale level. The Commission does not 

require any demand response resource to participate in Commission-jurisdictional 

wholesale markets. But when eligible demand response providers choose to 

participate in those markets, their participation directly affects Commissionjurisdictional wholesale rates. As such, the Commission has both the authority and 

duty to set just and reasonable market rules governing demand response 

participation in wholesale markets. The State’s authority to regulate retail demand 

response programs remains undisturbed. 

 Second, Generators argue that the Commission’s requirement that qualified 

demand response resources be compensated at the market price is a solution in 

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search of a problem. California makes the same claim, albeit limited to one aspect 

of the demand response compensation program – the Order No. 745 cost allocation 

requirement. The Federal Power Act requires that the Commission, before taking 

corrective action, demonstrate that existing conditions for demand response 

participation in wholesale markets are unjust, unreasonable and/or unduly 

discriminatory. Based upon several years of inquiry into demand response 

participation in wholesale markets, including the Order No. 719 rulemaking 

proceeding, staff and industry reports on the state of demand response, and, not in 

the least, the record of comments submitted in the proceedings leading to Order 

No. 745, the Commission has satisfied this standard. Substantial record evidence 

supports the Commission’s finding that existing, differing compensation methods 

for demand response participation in organized wholesale energy markets present a 

barrier to that participation and result in unreasonable and discriminatory rates in 

those markets. 

 Next, Generators challenge the Commission’s selection of the market price 

as a just, reasonable, and not unduly discriminatory rate for compensation of 

demand response resources participating in organized wholesale energy markets. 

The market price, the Commission has found, accurately reflects the value of the 

service provided by resources in wholesale energy markets. Demand response 

resources and supply-side (traditional generation) resources provide the same 

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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 37 of 115
service to the market; each can balance supply and demand at the call of the 

System Operator. Thus, the Commission’s orders simply require nondiscriminatory compensation at the market price, where demand response 

resources satisfy both the balancing and cost-effectiveness tests. 

Although Generators’ expert witnesses, including the amici economists, 

disagree, the Commission’s choice is reasoned and warrants deference. The 

Commission’s compensation decision balances the competing interests at stake, 

and is supported by substantial record evidence. That Generators are able to offer 

their own evidence, in support of a different compensation level, does not 

demonstrate the inadequacy or unreasonableness of the Commission’s evidence or 

conclusions based on that evidence. 

California alone challenges Order No. 745’s broad principle that the costs of 

obtaining demand response must be allocated proportionally to all benefitting 

entities. California’s claims are premature, but will be heard in the compliance 

proceedings required by Order No. 745. The Commission’s Order No. 745 cost 

allocation guideline is not sufficiently final, nor does it impose upon California an 

adequate injury-in-fact. In any event, the Commission adequately demonstrated 

the need for the new guideline, without addressing specific regional approaches, 

including California’s particular cost allocation mechanism. California 

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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 38 of 115
understandably seeks more certainty than provided by the Commission’s rule: that 

certainty will be forthcoming in compliance proceedings. 

ARGUMENT 

I. STANDARD OF REVIEW 

The arbitrary and capricious standard of the Administrative Procedure Act 

governs judicial review of Commission orders. See 5 U.S.C. § 706(2)(A). Under 

that standard, “FERC must have ‘examine[d] the relevant data and articulate[d] a 

satisfactory explanation for its action including a rational connection between the 

facts found and the choice made.’” Blumenthal v. FERC, 552 F.3d 875, 881 (D.C. 

Cir. 2009) (quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 

463 U.S. 29, 43 (1983) (internal citation omitted)) (affirming FERC’s denial of 

complaint challenging the lawfulness of New England’s wholesale electricity 

market). 

Reviewing courts “afford Chevron deference to the Commission’s assertion 

of jurisdiction” under the Federal Power Act. Connecticut, 569 F.3d at 481 (citing 

Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837 (1984)); 

see also Transmission Access, 225 F.3d at 687 (affirming the Commission’s 

jurisdiction to adopt open access rules for unbundled transmission provided 

directly to retail customers), aff’d, New York, 535 U.S. 1. If, in reviewing the 

statute, “the intent of Congress is clear, that is the end of the matter; for the court, 

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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 39 of 115
as well as the agency, must give effect to the unambiguously expressed intent of 

Congress.” Cal. Indep. Sys. Operator Corp. v. FERC, 372 F.3d 395, 401 (D.C. 

Cir. 2004) (quoting Chevron, 467 U.S. at 842-43). But if the statutory text is 

ambiguous, the Court “will defer to the agency’s interpretation if it is reasonable.” 

Id.; see also ExxonMobil Gas Mktg. Co. v. FERC, 297 F.3d 1071, 1083 (D.C. Cir. 

2002) (requiring only a “permissible construction of the statute” under Chevron

step two). In other words, Chevron “binds [the Court] to defer to Congress’s 

decision to grant the agency, not the courts, the primary authority and 

responsibility to administer the statute.” Associated Gas Distribs. v. FERC, 824 

F.2d 981, 1001 (D.C. Cir. 1987). 

In cases involving ratemaking decisions, such as this, “the statutory 

requirement that rates be ‘just and reasonable’ is obviously incapable of precise 

judicial definition, and [the Court] afford[s] great deference to the Commission.” 

Morgan Stanley, 554 U.S. at 532. “Because [i]ssues of rate design are fairly 

technical, and, insofar as they are not technical, involve policy judgments that lie at 

the core of the regulatory mission, [the court’s] review of whether a particular rate 

design is just and reasonable is highly deferential.” Northern States Power Co. v. 

FERC, 30 F.3d 177, 180 (D.C. Cir. 1994) (internal citations omitted). The 

question is not “whether the line drawn by the Commission is precisely right,” but 

whether the Commission’s decision is “within a zone of reasonableness.” Wis. 

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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 40 of 115
Pub. Power, Inc. v. FERC, 493 F.3d 239, 260 (D.C. Cir. 2007) (quoting 

ExxonMobil Gas Mktg. Co., 297 F.3d at 1084). 

Where, as here, the Commission’s decision involves the balancing of 

competing interests, “[t]he court’s responsibility is not to supplant the 

Commission’s balance of these interests with one more nearly to its liking, but 

instead to assure itself that the Commission has given reasoned consideration to 

each of the pertinent factors.” Permian Basin Area Rate Cases, 390 U.S. 747, 792 

(1968). 

The Commission’s factual findings, if supported by substantial evidence, are 

conclusive. See 16 U.S.C. § 825l(b). The substantial evidence standard “requires 

more than a scintilla,” but “can be satisfied by something less than a 

preponderance of the evidence.” Florida Mun. Power Ag. v. FERC, 315 F.3d 362, 

365-66 (D.C. Cir. 2003) (citations omitted). Merely pointing to some 

contradictory evidence is insufficient. Cogeneration Ass’n of Cal. v. FERC, 525 

F.3d 1279, 1283 (D.C. Cir. 2008) (citing cases). Moreover, in reviewing the 

Commission’s resolution of a dispute among competing expert opinions, “the 

Court applies a ‘particularly deferential standard’ of review.” Florida Mun. Power 

Ag. v. FERC, 602 F.3d 454, 461 (D.C. Cir. 2010) (quoting Wis. Valley 

Improvement Co. v. FERC, 236 F.3d 738, 746 (D.C. Cir. 2001)); see also Elec. 

Consumers Res. Council v. FERC, 407 F.3d 1232, 1236 (D.C. Cir. 2005) (same). 

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II. THE COMMISSION HAS JURISDICTION TO SET MARKET 

RULES, INCLUDING COMPENSATION, FOR DEMAND 

RESPONSE RESOURCES IN WHOLESALE ENERGY MARKETS 

Order No. 745 establishes compensation levels for demand response 

resources participating in organized wholesale energy markets that are indisputably 

subject to the Commission’s jurisdiction. Generators alone, without the support of 

any state regulatory authority, claim that the Commission has encroached 

impermissibly on state authority over retail transactions, on the premise that all 

demand response is necessarily retail. Generator Br. 28. This premise is false. Put 

simply, demand response can occur in both retail and wholesale markets. See

Order No. 745 P 9, JA ____. The Order No. 745 rulemaking, like its predecessor 

Order No. 719 rulemaking, addresses only demand response resources offered into 

wholesale markets. Id. P 114, JA ____; Order No. 745-A P 32, JA ____. 

A. States Retain Full Authority To Offer Retail Demand Response 

Programs 

No State challenges the Commission’s assertion of authority, first in Order 

No. 719 (which was not appealed) and now in Order No. 745, to address demand 

response resources bidding into organized wholesale energy markets. Nor does 

any instrumentality of any State, such as a state retail public service commission or 

a representative of retail consumers (such as a state attorney general or a state 

consumer advocate). Generators alone take it upon themselves to challenge what 

they playfully refer to as the Commission’s “power grab.” Br. 33. In their 

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judgment, the Commission has unlawfully intruded into retail transactions and the 

States’ ability to set retail rates. Id. at 3-4 (FERC interferes with state regulation of 

retail transactions), 22 (FERC “directly regulates retail transactions”), 28-32 

(“reality” is that FERC “interferes with the States’ exclusive authority” by 

“directly regulat[ing]” retail services). 

 But there is no such intrusion or interference. As the Commission 

explained, first in Order No. 719 and then later in Order No. 745, there are two 

types of demand response programs. See Order No. 745 P 9, JA ____. Retail 

demand response programs remain entirely within the control of the states. The 

wholesale demand response program at issue here remains subject to Commission 

regulation as part of its oversight of organized wholesale markets, the terms and 

conditions of participation in those markets, and the wholesale rates produced by 

those markets. Order No. 745 applies only to the latter type of demand response 

program, not the former. 

To be sure, the Commission recognizes that “demand response is a complex 

matter that lies at the confluence of state and federal jurisdiction.” Order No. 745 

P 114, JA ____; see also Order No. 745-A P 32, JA ____. But the Commission 

does not, as Generators allege, “obliterate” or “conflate” the bounds of federal and 

state jurisdiction. Generator Br. 31, 37. Nor does it transform a retail transaction 

into a wholesale transaction. See Order No. 745 P 9 (discussing two distinct types 

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of demand response, retail and wholesale), JA ____. Rather, the Commission’s 

rulemaking here, together with its earlier Order No. 719 rulemaking, opens 

wholesale markets to demand response participation but does not compel 

participation. And it does not “require that demand response resources offer into 

the wholesale market only.” Order No. 745-A P 71, JA ___. 

 Even as to those demand response resources that choose to participate in 

wholesale energy markets, Order No. 745 recognizes an important role for the 

States. The Commission, through its approval of market rules, determines whether 

a market participant is a qualified participant eligible to bid into a System 

Operator’s wholesale markets. Any resource, whether a traditional supply-side 

resource or a new demand-side resource, must satisfy the numerous measurement, 

verification, technical and financial eligibility requirements for participating in an 

organized wholesale market. See Order No. 745-A P 121 (measurement and 

verification requirements for demand response), JA ____; Order No. 745 PP 93-95 

(same), JA ____-___; see generally Credit Reforms in Organized Wholesale 

Electric Markets, Order No. 741, 133 FERC ¶ 61,060 (2010) (reforming credit 

policies in organized wholesale markets and requiring minimum criteria for market 

participation). Yet as described in Order No. 719 and continued in Order No. 745, 

States also may determine the eligibility of demand response resources within their 

borders to participate directly in the wholesale markets. See 18 C.F.R. 

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§ 35.28(g)(1)(iii); see also Indiana, 668 F.3d at 736. Given the continuing high 

degree of state involvement and state discretion as to demand response, it is no 

surprise at all that no State – not even California, which appeals on other issues – 

joins Generators’ jurisdictional objection. 

 At most, the Commission’s actions in Order No. 745 have some incidental 

effect on state demand response programs. Generators speculate that Order No. 

745 may interfere with the development and operation of state level demand 

response programs, and argue that the Commission failed to address these 

concerns. Generator Br. 42-44. But Generators failed to preserve this issue for 

judicial review, leaving the Court without jurisdiction to consider it. See 16 U.S.C. 

§ 825l(b) (limiting the Court’s jurisdiction to only those objections “urged before 

the Commission in the application for rehearing unless there is reasonable ground 

for failure so to do”); see also Entergy Servs. v. FERC, 391 F.3d 1240, 1247 (D.C. 

Cir. 2004) (“Parties seeking review of FERC orders must petition for rehearing of 

those orders and must themselves raise in that petition all of the objections urged 

on appeal.”) (citing cases). A group of state representatives did raise this issue on 

rehearing before the agency in the context of challenging the Commission’s 

jurisdiction; they did not appeal the orders. See Midwest States Rehearing Request 

at 6, R. 233, JA ____; Generator Br. 44 (citing same). 

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In any event, with Order No. 745, “[t]he Commission . . . is not regulating 

retail rates or usurping or impeding state regulatory efforts . . . .” Order No. 745 P 

114, JA ____. While “participation in a Commission jurisdictional . . . market may 

indirectly affect incentives in a state demand response initiative,” Order No. 745-A 

P 32, JA ____, the Commission has a statutory obligation to act to ensure that 

FERC-jurisdictional rates are reasonable and not discriminatory (see infra Pt. III); 

its exercise of jurisdictional authority cannot await “potential actions that state[s] 

. . . may or may not take.” Order No. 745 P 115, JA ____. Any incidental effect 

on state jurisdictional demand response programs is insufficient to deprive the 

Commission of its exclusive jurisdiction to regulate market rules for organized 

wholesale energy markets. See, e.g., Order No. 745-A P 24, 27, JA ____, ____. 

While Generators cite to cases offering “bright line” distinctions between 

wholesale and retail transactions (Br. 30), they fail to recognize that a retail 

transaction can have an effect, small or large, on wholesale markets and that, 

conversely, a wholesale transaction can have an effect on retail markets. There is 

nothing inherently improper with this. See Nat’l Ass’n of Reg. Util. Comm’nrs v. 

FERC, 475 F.3d 1277, 1280 (D.C. Cir. 2007) (the Commission’s authority to act 

within its statutory scope of jurisdiction “may, of course, impinge as a practical 

matter on the behavior of non-jurisdictional” entities); Niagara Mohawk, 452 F.3d 

at 828 (“in drawing the jurisdictional lines” between retail and wholesale 

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transactions under the FPA, “some practical accommodation is necessary”). The 

task for the courts on review of FERC decisions is to determine whether the 

Commission has acted within its statutory authority. If, as here, it has, that is the 

end of the court’s jurisdictional scrutiny. See Nat’l Ass’n, 475 F.3d at 1281-82 (the 

“assertion of jurisdiction over specified transactions, even though affecting the 

conduct of the owners(s) with respect to [non-jurisdictional] facilities, is not per se 

an exercise of jurisdiction over the facility;” court looks for a “close enough 

relation to FERC’s exercise” of its statutory jurisdiction). 

The Supreme Court’s decision in New York v. FERC, 535 U.S. 1, is 

particularly instructive. There, the Court upheld, over State objections, the 

Commission’s assertion of jurisdiction to require open access service on interstate 

transmission lines – even those directly serving retail customers. While, at the 

time of enactment of the Federal Power Act, the “electricity universe was neatly 

divided into spheres of retail versus wholesale sales,” id. at 16, more recent 

technological and regulatory advances have blurred that distinction. Section 201 

of the Act, 16 U.S.C. § 824(a), reserving state authority over certain types of 

transactions, is a “mere policy declaration that cannot nullify a clear and specific 

grant of jurisdiction” to the Commission. 535 U.S. at 22 (citing earlier Supreme 

Court cases). Where the Commission acts within its jurisdictional authority – there 

as to interstate transmission, here as to wholesale sales – an effect, if any, on state 

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jurisdictional authority is not jurisdictionally meaningful. What is meaningful is 

the Commission’s commitment – as here – to regulate the markets within its 

statutory authority and to leave to the States the regulation of markets within their 

authority. Id. at 22-23. 

B. Demand Response Participation In Wholesale Energy Markets 

Falls Within FERC Jurisdiction As A Practice “Affecting” 

Jurisdictional Rates 

 In Order No. 745, the Commission reasonably determined, invoking its 

expertise in the operation of jurisdictional organized wholesale energy markets, 

that demand response has a direct effect on wholesale rates in those markets, and 

thus falls within the Commission’s Federal Power Act jurisdiction as a practice 

“affecting” rates. Order No. 745 P 112, JA ____; Order No. 745-A PP 24-25, JA 

____; see FPA §§ 205-206, 16 U.S.C. §§ 824d-e. The Commission has invoked 

this jurisdiction before, and follows its Order No. 719 precedent here. Only now, 

when the Commission has required comparable, non-discriminatory compensation 

for demand response resources, do Generators seek judicial review. 

1. Demand response resources participating in wholesale 

energy markets directly affect wholesale energy rates 

The Commission reasonably concluded that demand response participation 

in organized wholesale markets, as well as the governing market rules, directly 

affect wholesale energy rates. See, e.g., Order No. 745-A P 23, JA ____. When 

demand response is offered into the wholesale market, it causes a reduction in 

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demand, resulting in a lower wholesale price. Id. (citing Order No. 719-A P 47, JA 

____), JA ____. Demand response offers “tend to lower the market clearing price 

[by] placing downward pressure on generator offer strategies by making it more 

likely that a higher offer from a generator will not be accepted when the market 

clears.” Id. Generators do not deny this effect; indeed, it appears to underlie their 

appeal. See Br. 24 (basing standing in part on “direct effect” of Order No. 745 on 

the “compensation their members receive for generating energy”). 

In addition to a direct effect on wholesale energy prices, the Commission 

explained that demand response participation in wholesale markets “helps to 

mitigate market power and strengthen system reliability.” Order No. 745-A P 23, 

JA ____. System reliability improves because demand response generally can be 

dispatched with a minimal notice period, which allows System Operators to 

balance the system in the event of unexpected contingencies. Id. Demand 

response participation in wholesale energy markets also affects FERCjurisdictional transmission rates by relieving congestion on transmission lines that 

lead to higher transmission charges. Id. P 23 n.51, JA ____. 

Generators do not challenge the Commission’s factual findings that demand 

response in wholesale markets and the associated market rules directly affect 

jurisdictional, wholesale rates. And, in any event, the effect on wholesale rates 

here is far from “remote.” Cal. Indep. Sys. Operator, 372 F.3d at 403 (finding, in 

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contrast, that board selection procedures are not practices “affecting” rates, and 

therefore not subject to FERC’s jurisdiction). 

2. The Commission’s interpretation of its Federal Power Act 

jurisdiction is reasonable and consistent with this Court’s 

precedent 

The Federal Power Act’s reservation of authority to the States to regulate 

retail sales and generating facilities remains intact after Order No. 745. 

Generators’ claim that the Commission’s interpretation of FPA sections 201, 205, 

and 206, 16 U.S.C. §§ 824, 824d-e, renders this reservation superfluous (Br. 31-32) 

relies entirely on their mistaken belief that demand response occurs only at the 

retail level. See Indiana, 668 F.3d at 736 n.** (unnumbered footnote) (noting 

different types of demand response). Order No. 745 regulates wholesale demand 

response transactions and does not regulate retail transactions of any kind. 

Generators next rely (Br. 38) on the principle that the Commission may not 

do indirectly what it cannot do directly. As applied here, however, this argument 

would eliminate the specific assignment of authority in the FPA allowing the 

Commission jurisdiction to regulate practices “affecting” rates. 16 U.S.C. 

§§ 824d(c), 824e(a). See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 

120, 133 (2000) (statute must be interpreted as a “coherent regulatory scheme” 

with “all parts [fit] into a harmonious whole”) (internal citations omitted). The 

Commission does not claim that its jurisdiction to regulate practices “affecting” 

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rates trumps the express limitation on its authority to regulate non-wholesale sales. 

Demand response participation in organized wholesale energy markets is not a 

retail sale, and Generators ignore the Commission’s conclusions in that regard. 

This Court’s precedent supports the Commission’s interpretation here. In 

particular, Order No. 745’s compensation rule for demand response in wholesale 

markets is much like the Commission’s capacity charges and requirements that this 

Court has affirmed as practices “affecting” rates within the Commission’s 

jurisdiction. See Order No. 745-A P 25 (citing, e.g., Connecticut Dep’t of Pub. 

Util. Control v. FERC, 569 F.3d 477 (D.C. Cir. 2009); Groton v. FERC, 587 F.2d 

1296, 1302 (D.C. Cir. 1978); and Mississippi Industries v. FERC, 808 F.2d 1525, 

1542 (D.C. Cir. 1987)), JA ____. 

In Connecticut, this Court recently addressed Commission orders 

establishing a forward capacity market, where capacity providers, including 

generators and, among others, demand response resources, competitively bid to 

meet future capacity needs. Connecticut, 569 F.3d at 480-81 (describing capacity 

market operation). Several state regulatory authorities, including Connecticut, 

claimed that the Commission crossed the FPA’s jurisdictional divide, which 

precludes the Commission from regulating generation facilities. Id. at 481. The 

Court affirmed the Commission’s exercise of authority, holding that “[w]here 

capacity decisions about an interconnected bulk power system affect FERC35

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 51 of 115
jurisdictional transmission rates for that system without directly implicating 

generation facilities, they come within the Commission’s authority.” Id. at 484 

(quoted in Order No. 745-A P 25, JA ____); see also Connecticut, 569 F.3d at 482 

(“we see no direct regulation of generation facilities in violation” of the statute). 

Generators overlook (Br. 39) the Court’s finding that the capacity 

requirement, because it “help[s] to find the right price,” is a practice “affecting” 

rates. Id. at 485 (citing FPA § 206, 16 U.S.C. § 824e(a)). Demand response 

participation in wholesale markets, like capacity requirements, helps the market to 

locate the right price. Order No. 745-A P 25, JA ____. And Generators offer no 

basis for distinguishing demand response from capacity, neither of which is 

referenced explicitly in the general grant of jurisdiction to the Commission in FPA 

section 201, 16 U.S.C. § 824. Order No. 745-A P 26, JA ____. Just as the 

capacity target and market in Connecticut did not regulate generating facilities, 

here the Commission’s compensation requirement for demand response resources 

participating in wholesale energy markets does not regulate retail sales. 

Generators accurately described Connecticut, on rehearing before the Commission, 

as “underscore[ing] the fact that the Commission does, in fact, possess broad 

jurisdiction to regulate practices affecting rates for wholesale sales.” EPSA, et al. 

Rehearing Request at 10, R. 232, JA ____. 

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Generators’ concern (Br. 37) that Order No. 745 may be designed, in part, to 

remedy problems originating in retail rate design or the disconnect between retail 

and wholesale rates is also misplaced. Connecticut establishes that whether the 

Commission’s goals include remedying conditions outside its jurisdictional bounds 

is “irrelevant.” Id. at 484 (explaining that, in Groton, 587 F.2d at 1302, the Court 

found it “irrelevant that the deficiency charges were ‘designed as an incentive’ for 

the purchase or construction of adequate capacity so long as the charges affected 

transmission rates otherwise within the Commission’s jurisdiction”); see also 

Connecticut, 569 F.3d at 482 (explaining that whether Commission action is “for 

the express purpose of incentivizing construction of new generation facilities” is 

irrelevant). What is relevant is that the agency establish a connection – here, a 

direct connection – to rates for FERC-jurisdictional service. 

Generators foresee a slippery slope, claiming that the Commission next will 

seek to regulate any number of inputs to the costs of Commission-jurisdictional 

generation and transmission. Generator Br. 33. But unlike demand response 

resources, marketers of steel, cement and fuels such as natural gas and coal are not 

“direct participants” in Commission-jurisdictional wholesale energy markets. 

Order No. 745-A P 31, JA ____. In Generators’ view, this distinction cannot 

stand, because “the Commission has brought them [i.e., demand response 

resources] into the markets.” Generator Br. 33. Yet Generators elsewhere have 

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stated that they “fully support” demand response participation in wholesale energy 

markets. See, e.g., EPSA, et al. Rehearing Request at 2, JA ____. 

On this point Generators’ error lies with their failure to recognize the 

Commission’s authority to set rates and market rules for all direct participants in 

those jurisdictional markets, regardless of the participants’ jurisdictional status. 

See Order No. 745-A P 27 (a demand response resource “may choose to participate 

in the . . . organized wholesale energy markets, therefore making it a market 

participant”), JA ____; see also id. P 28, JA ____. In Sacramento Mun. Util. Dist. 

v. FERC, 616 F.3d 520 (D.C. Cir. 2010), for instance, the Court affirmed that the 

Commission’s power to set rates in a jurisdictional market run by the California 

System Operator extends to assessing charges to non-jurisdictional market 

participants. See also Nat’l Ass’n, 475 F.3d at 1282 (affirming jurisdiction over 

interconnections involving transmission facilities engaged in both jurisdictional 

and non-jurisdictional service, when the facilities are included in jurisdictional 

rates and the transaction facilitates a wholesale sale of energy). 

Likewise, in United Distrib. Cos. v. FERC, 88 F.3d 1105, 1151-54 (D.C. 

Cir. 1996), the Court upheld the Commission’s setting of rules for capacity release 

on jurisdictional, interstate natural gas pipelines, even for non-jurisdictional 

municipal local distribution companies. As the Court explained, “the transaction 

itself controls access to interstate transportation capacity, entirely independent of 

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the jurisdictional nature of the releasing and replacement shippers.” Id. at 1154. 

See also Order No. 745-A P 28 n.65 (citing Transmission Ag. of N. Cal. v. FERC, 

628 F.3d 538, 540 (D.C. Cir. 2010) (finding Commission jurisdiction to regulate 

interconnections with non-public utilities when these transactions “impact the 

[System Operator]-controlled grid [and] only a party that chooses to use [that] grid 

is affected”)), JA ____. 

Generators misunderstand the Commission’s reliance on these cases, which 

is not to show that the Commission can, of course, approve rates and rules for 

jurisdictional markets. Generator Br. 39-41. Rather, these cases demonstrate that 

those rates and rules extend to those who directly participate in those markets, 

including non-jurisdictional entities and entities that engage in other, nonjurisdictional transactions. (The Commission does not claim, as Generators state 

(Br. 40), that these cases “eliminated the [FPA’s] express exemption of municipal 

utilities or granted the Commission authority to regulate their rates.”) Thus, “the 

Commission has jurisdiction over the way in which [System Operators run] 

jurisdictional markets, including the market rules that govern demand response 

participation in those markets, to assure that the rates resulting from those markets 

are just and reasonable.” Order No. 745-A P 28, JA ____; see also 

EnergyConnect, Inc., 130 FERC ¶ 61,031, P 32 (2010) (same). 

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Like this Court’s precedent, the statement of congressional policy in section 

1252(f) of the Energy Policy Act of 2005, 16 U.S.C. § 2642, supports the 

Commission’s construction of its Federal Power Act jurisdiction. See supra p. 11. 

The Commission does not rely on the Energy Policy Act of 2005 as an independent 

basis of jurisdiction, Order No. 745-A P 34, JA ____; it has no need to in light of 

its expansive jurisdiction to regulate practices “affecting” rates under the FPA. But 

Generators omit that the Energy Policy Act declares that “[i]t is the policy of the 

United States that . . . unnecessary barriers to demand response participation in 

energy, capacity, and ancillary service markets shall be eliminated.” Pub. L. No. 

109-58, § 1252(f), 119 Stat. 594, 966 (2005). On rehearing, the Commission 

explained that the referenced markets, as Congress is well aware, are indisputably 

subject to the Commission’s jurisdiction. Order No. 745-A P 34, JA ____. The 

Commission’s rulemaking advances congressional policy; its reasonable 

interpretation of the Federal Power Act follows this Court’s precedent, and 

warrants respect. See Connecticut, 569 F.3d at 481. 

III. CALIFORNIA’S COST ALLOCATION CHALLENGE IS 

PREMATURE AND SHOULD BE DISMISSED 

California alone challenges the cost allocation element of the Commission’s 

Order No. 745 reforms. California Br. 3. But this claim does not pass the 

jurisdictional thresholds of standing and ripeness. See Toca Producers v. FERC, 

411 F.3d 262, 265 (D.C. Cir. 2005) (ripeness “may be resolved without first 

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addressing . . . Article III standing” and the court may “choose among threshold 

grounds” for dismissal). Order No. 745 enunciates a general approach to 

allocating the costs of obtaining demand response resources, while allowing 

regional variation. But it defers ruling on particular methods, including 

California’s, to now-ongoing compliance proceedings. As such, on this issue the 

Commission’s orders are insufficiently final for ripeness purposes, and do not 

cause California an injury-in-fact. Nevertheless, the Commission addresses 

California’s merits objections to the Commission’s cost allocation approach in 

subsequent sections. See infra Pt. IV (need for reform); Pt. V.C (consistency with 

precedent); Pt. VI (support for the new approach). 

With respect to cost allocation, Order No. 745 directed each System 

Operator to “make a compliance filing . . . that either demonstrates that its current 

cost allocation methodology appropriately allocates costs to those that benefit from 

the demand reduction or proposes revised tariff provisions that conform to this 

requirement.” Order No. 745 P 102, JA ____. Consistent with these directives, 

and as California acknowledges (Br. 20), the Commission on rehearing expressly 

declined to address the merits of the California System Operator’s cost allocation 

mechanism. Order No. 745-A P 141 (“We cannot determine on this record 

whether the existing cost allocation in the [California] market meets these 

criteria.”), JA ____. 

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The California System Operator’s Order No. 745 compliance filing sought 

approval of its existing method as consistent with Order No. 745. See Cal. Indep. 

System Op. Corp., 137 FERC ¶ 61,217 (2011). As California explains (Br. 12), on 

the same day the Commission issued Order No. 745-A, it also issued a separate 

order addressing the compliance filing. 137 FERC ¶ 61,217. The Commission 

found that the California System Operator had not adequately demonstrated 

compliance with Order No. 745’s cost allocation guideline.6

 Id. P 45. In response, 

the California System Operator submitted a revised filing and a request for 

rehearing of the Commission’s order; these remain pending before the 

Commission. 

Dismissal is appropriate on either ripeness or standing grounds. Under the 

ripeness doctrine, the Court “evaluate[s] both the fitness of the issues for judicial 

decision and the hardship to the parties of withholding court consideration.” 

Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967). As most relevant here, the 

“fitness of the issue” prong requires an agency’s action to be sufficiently final. 

Toca Producers, 411 F.3d at 266. An agency order is final for purposes of 

appellate review when it “imposes an obligation, denies a right, or fixes some legal 

relationship as a consummation of the administrative process.” Papago Tribal 

 

6

 California’s reliance (e.g., Br. 23) before this Court on the Commission’s initial 

order in the compliance proceeding is inappropriate. As it recognizes (Br. 12), that 

order is not on review here.

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Util. Auth. v. FERC, 628 F.2d 235, 239 (D.C. Cir. 1980) (citing cases). Here, the 

Commission expressly deferred to compliance proceedings consideration of 

whether California’s existing cost allocation method, and the Commission orders 

approving it, is consistent with Order No. 745. See Transmission Access, 225 F.3d 

at 690 (rejecting as unripe a customer’s claim that the Order No. 888 rulemaking 

conflicted with a contract when FERC and the parties were “still in the process of 

determining whether the . . . provisions even conflict with Order 888, as well as 

how to deal with any such inconsistency”). The Commission therefore has not 

addressed California’s specific cost allocation issues, leaving the orders 

insufficiently ripe for review. 

Invoking a similar analysis, Article III standing before this Court requires 

that a petitioner show an injury-in-fact, but it cannot where an order is 

“conditional, subject to a further compliance filing, and thus . . . without binding 

effect on” the petitioner. DTE Energy Co. v. FERC, 394 F.3d 954, 960 (D.C. Cir. 

2005); see also New Mexico Attorney General v. FERC, 466 F.3d 120, 121 (D.C. 

Cir. 2006) (dismissing on standing grounds an agency order authorizing a new 

System Operator subject to various compliance filings) (citing cases). It is “not 

until . . . the Commission accept[s] the compliance filing, that [petitioners can] 

demonstrate actual injury.” DTE Energy, 394 F.3d at 961. 

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California cannot show the requisite injury-in-fact resulting from the cost 

allocation reforms of Order No. 745. The Commission did not find California’s 

cost allocation method unjust and unreasonable. Rather, Order No. 745 allows 

significant regional flexibility and requires that existing cost allocation methods be 

reformed only to the extent they do not comply with the articulated cost allocation 

principle. See Order No. 745-A P 140, JA ____. 

Indeed, California may yet receive the relief it seeks, either from the 

Commission in its compliance proceeding, or from a Court on review of that 

proceeding. See Friends of Keeseville, Inc. v. FERC, 859 F.2d 230 (D.C. Cir. 

1988) (“any judicial relief to which [petitioners] may be entitled is deferred but not 

denied”). The burden of participating in future compliance proceedings is neither a 

hardship for ripeness purposes, nor an injury-in-fact for standing purposes. See 

Clean Air Implementation Project v. EPA, 150 F.3d 1200 (D.C. Cir. 1998) 

(petitioners identified “no great hardship;” rule unripe where “there are too many 

imponderables”); PNGTS Shippers’ Group v. FERC, 592 F.3d 132, 138 (D.C. Cir. 

2010) (“being forced to confront questions in a future legal proceeding” is not an 

injurt-in-fact). Accordingly, judicial review is premature. 

To the extent California challenges the Commission’s decision to address 

regional issues, including California’s, in regional compliance proceedings, the 

Commission’s discretion to control its own dockets is dispositive. See Domtar Me. 

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Corp. v. FERC, 347 F.3d 304, 314 (D.C. Cir. 2003) (“The agency . . . alone is 

cognizant of the many demands on it, its limited resources, and the most effective 

structuring and timing of proceedings to resolve those competing demands.”) 

(citation omitted). See also City of Las Vegas v. Lujan, 891 F.2d 927, 935 (D.C. 

Cir. 1989) (“[s]ince agencies have great discretion to treat a problem partially, [the 

Court] would not strike down the [agency’s decision] if it were a first step toward a 

complete solution, even if [the Court] thought [the agency] ‘should’ have covered 

both” issues in the same order) (footnote omitted). The Commission reasonably 

concluded that, in this generic rulemaking proceeding, it lacked the necessary 

record to determine whether California’s specific cost allocation method meets the 

new guideline. Order No. 745-A P 141, JA ____. In its opening brief, California 

did not challenge this determination, and it may not do so on reply. 

IV. ORDER NO. 745’S DEMAND RESPONSE REFORMS ARE VITAL 

TO OVERCOME BARRIERS TO DEMAND RESPONSE 

PARTICIPATION IN WHOLESALE MARKETS 

The Commission has a statutory duty to ensure just and reasonable rates and 

prevent undue discrimination in the organized wholesale energy markets. Order 

Nos. 745 and 745-A carry out that duty. Those orders, and the Proposed Rule, 

each reflect the Commission’s findings that existing demand response programs in 

organized wholesale energy markets are unjust and unreasonable, and unduly 

discriminatory, because they allow barriers to demand response participation in 

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those markets to persist. See Order No. 745 P 47, JA ___; Order No. 745-A PP 72-

75, 140-41, JA____-__, ____-__; Proposed Rule P 13, JA ____. 

A. The Commission Made The Required Statutory Findings 

The Commission’s orders include findings, under section 206 of the Federal 

Power Act, 16 U.S.C. § 824e, that existing demand response programs, including 

the compensation schemes and related cost allocation methods, are inadequate. 

See Order No. 745 PP 47 (“payment . . . of compensation other than the LMP is 

unjust and unreasonable”), 100-101, JA ____, ____-__; Order No. 745-A PP 73-

75, 140, JA ____-__, ____. 

California complains that the Commission failed to make the requisite FPA 

section 206 findings, at all, as to cost allocation. California Br. 19-20. As 

explained above (supra Pt. III), this claim is premature. But, in any event, 

California’s complaint arises because Order No. 745-A addresses the need for cost 

allocation reform as part of the rulemaking’s overall reforms. Order No. 745-A P 

140 (referencing FPA section 206 findings “discussed above”), JA ____. 

Compensation was the primary issue raised on rehearing, with only Californiabased entities challenging the Commission’s basis for adopting the cost allocation 

element of the reforms. See Order No. 745-A P 140, JA ____. The Commission’s 

emphasis in its orders reflects the emphasis of the parties in their pleadings below. 

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When taking action in a generic rulemaking applicable to all System 

Operators, the Commission need not make “specific findings” concerning the 

justness and reasonableness of each System Operator’s demand response program 

or the particular elements of each such program. Transmission Access, 225 F.3d at 

688 (citing, e.g., Wisconsin Gas Co. v. FERC, 770 F.2d 1144, 1165-68 (D.C. Cir. 

1985)), aff’d, New York. Nor must the Commission “offer empirical proof for all 

the propositions upon which its order depend[s]” when it remedies undue 

discrimination in a generic rulemaking proceeding. Id. 

With respect to cost allocation, Order No. 745 finds existing cost allocation 

methods inadequate only to the extent they do not comply with the general 

guideline. Order No. 745-A P 140 (“[A]ny energy market demand response 

program is unjust and unreasonable if . . . it does not allocate costs appropriately to 

those parties that benefit from the reduction in LMP occasioned by the demand 

response.”), JA ____. The guideline allows regional variation (id. P 115, JA 

____), and contemplates that System Operators may choose, in their compliance 

filings, to demonstrate the adequacy of their existing cost allocation, or to propose 

changes as necessary. Order No. 745 P 102, JA ____. For this reason, the 

Commission expressly declined to make specific findings for each System 

Operator, and California in particular. See Order No. 745-A P 141 (“We cannot 

determine on this record whether the existing cost allocation in the [California] 

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market meets these criteria.”), JA ____. See also id. P 115, JA ____. As discussed 

below, the Commission’s generic findings are well supported by the record. 

B. Substantial Record Evidence Supports The Commission’s 

Findings As To The Need For Further Reform 

Since 2007, the Commission has issued several directives, both in generic 

rulemakings and in orders specific to certain System Operators, to remove barriers 

to, and facilitate participation of, demand response in organized wholesale markets. 

Generators and California insist that the Commission has done enough; that 

existing compensation levels for demand response resources participating in those 

markets remain just and reasonable. Generator Br. 61-65; California Br. 15-16. 

The Commission disagrees and, in the orders on review and the Proposed 

Rule, identified the existence of continuing barriers to participation of, and undue 

discrimination toward, demand response resources in wholesale markets. The 

Commission’s findings are based upon years of analysis, including multiple staff 

assessments of demand response participation in the markets, testimony and 

evidence received in this rulemaking proceeding, and the earlier Order No. 719 

rulemaking proceeding, and related technical conferences. The Commission’s 

factual findings on this substantial record invoke the Commission’s technical 

expertise and deserve the Court’s deference. See, e.g., Permian Basin Area Rate 

Cases, 390 U.S. at 767 (a “presumption of validity . . . attaches to each exercise of 

the Commission’s expertise”). This is especially so when, as explained earlier at 

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p. 40 supra, the Commission’s findings advance federal policy to both 

“encourage,” and eliminate barriers to, demand response. 16 U.S.C. § 2642. 

Under the existing, varied demand response programs in organized 

wholesale energy markets, demand response participation remains relatively low. 

Order No. 745 P 57, JA ____; Proposed Rule P 9, JA ____; see also, e.g., Demand 

Response Supporters, Reply Comments at 9 n.29 (Aug. 30, 2010) (citing a U.S. 

Department of Energy calculation that, in 2008, demand side management 

programs comprised only 2% of the market), R. 149, JA ____; id. at 9-10 (citing 

System Operator reports discussing inadequate demand response participation), JA 

____. Indeed, one System Operator had no demand response program at all at the 

time of the Proposed Rule. Proposed Rule P 8, JA ____. Generators fault the 

Commission for not quantifying the amount of demand response that “is supposed 

to be enough.” Br. 64. But the Commission need not establish a numerical target 

for any resource, including demand response resources. Order No. 745-A P 60 

(“[r]ule not based on a pre-determined . . . amount of demand response that is 

necessary”), JA ____. 

The Commission specifically identified numerous, continuing barriers to 

demand response in wholesale markets. Order No. 745 P 57 (citing FERC Staff, 

National Assessment of Demand Response Potential (June 2009), at 

http://www.ferc.gov/legal/staff-reports/06-09-demand-response.pdf), JA ____; see 

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also Proposed Rule P 19 n.46 (same), JA ____. Barriers identified by commenters 

in the record include: 

the lack of a direct connection between wholesale and retail prices,

lack of dynamic retail prices (retail prices that vary with changes in 

marginal wholesale costs), the lack of real-time information sharing, 

and the lack of market incentives to invest in enabling technologies 

that would allow electric customers and aggregators of retail 

customers to see and respond to changes in marginal costs of 

providing electric service as those costs change. 

Order No. 745 P 57 (internal citation omitted), JA ____. Commission Staff’s 2009 

National Assessment, in particular, lists 24 barriers, including regulatory, 

economic and technological barriers. Included among the regulatory barriers at the 

wholesale level are “[m]arket structures oriented toward accommodating supply 

side resources.” 2009 National Assessment, Table 9, p. 66. 

In addition, inadequate compensation is a particular concern and barrier to 

the participation of demand response resources in wholesale energy markets. The 

Commission, referencing record evidence, explained that “the inadequate 

compensation mechanisms in place today in wholesale energy markets fail to 

induce sufficient investment in demand response resource infrastructure and 

expertise that could lead to adequate levels of demand response procurement.” 

Order No. 745 P 57 (quoting EnerNOC, Comments at 4 (May 13, 2010), R. 94, JA 

____), JA ____; see also Viridity Energy, Comments at 4 (May 13, 2010), R. 82, 

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JA ____; Federal Trade Commission, Comments at 2 (May 13, 2010), R. 58, JA 

____. 

Prior to Order No. 745, several System Operators had implemented specific 

compensation approaches, including variations on locational marginal pricing, for 

demand response in organized wholesale energy and ancillary services markets. 

Order No. 745 P 14, JA ____. But the Commission has observed, and industry 

participants have testified, that the absence of stable, standardized compensation 

structures is a detriment to demand response participation in wholesale markets. 

Proposed Rule P 9 (citing comments), JA ____. 

On this point, the Commission highlighted a study by the independent 

market monitor for PJM Interconnection, the System Operator in Mid-Atlantic and 

Midwestern states, following changes in PJM’s demand response program. 

Proposed Rule P 10 (citing Monitoring Analytics, Barriers to Demand Side 

Response at 22, Docket No. EL09-68 (July 1, 2009), JA ____), JA ____. In 2002, 

PJM implemented a demand response program that paid LMP to demand response 

resources when LMP exceeded a threshold price. Id. In 2008, that program 

expired under a sunset provision, and PJM began paying a lower rate (LMP minus 

the generation and transmission components of the retail rate). Id.; see also PJM 

Industrial Customer Coalition v. PJM Interconnection, L.L.C., 121 FERC ¶ 61,315 

P 29 (2007) (rejecting request to prevent program expiration). Following this 

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decrease, PJM’s market monitor identified a 36.8 percent reduction in demand 

response participation. Proposed Rule P 10, JA ____. As the Commission 

explained, based on this observation and other evidence, it is 

now concerned that evidence of demand reductions in PJM, and 

inadequate demand response participation, now and in the future, may 

be the result of compensation that is no longer just and reasonable, 

because, as detailed below, the existing and varying levels of 

compensation generally fail to reflect the marginal value of demand 

response resources to [regional] energy markets. 

Id. 

Generators assert that the Commission here aims to remedy perceived 

inefficiencies and problems in the retail markets. Generator Br. 65. The 

Commission made plain that its reforms are not intended to usurp or impede state 

regulatory programs concerning demand response. Order No. 745 P 114, JA ____. 

Nor is the Commission requiring any action that would violate state law. Id. But 

the Commission’s statutory duty cannot await “potential actions that state retail 

regulatory authorities may or may not take.” Id. P 115, JA ____. And, in 

ratemaking, “consideration of the relationship between jurisdictional and 

nonjurisdictional rate structures is commonplace.” FPC v. Conway Corp., 426 

U.S. 271, 280 (1976). 

In addition to its findings as to compensation programs in general, the 

Commission specifically addressed the need for reform of existing methods for 

allocating costs of obtaining demand response in organized wholesale energy 

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markets. Compensating demand response resources offering services into 

organized wholesale markets triggers the need for cost allocation. Order No. 745 P 

99, JA ____; Supplemental Proposed Rule P 12 (noting relationship between cost 

allocation and compensation), JA ____. Because the market price may vary 

depending upon transmission constraints, it is necessary that cost allocation 

methods properly reflect the “degree to which each [market participant] receives 

benefits.” Order No. 745 P 101, JA ____. As it is possible that some pre-Order 

No. 745 cost allocation methods may satisfy this standard, as discussed above, the 

Commission logically refrained from making further detailed findings. See Order 

No. 745-A PP 113-20 (deferring a variety of issues regarding cost allocation to 

compliance proceedings), JA ____-__. 

The ability of demand response resources to enter and compete in organized 

wholesale markets has improved in response to recent reforms. Nonetheless, 

contrary to Generators’ claim (Br. 64), the record here starkly contrasts with that in 

Nat’l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006). The Court 

found no “evidence of a real problem” in that case, id. at 841, but it is plentiful 

here. Indeed, the Commission found, based on specific examples and the 

experience and testimony of demand response providers and noted experts, that the 

identified barriers remain. See Proposed Rule P 9, JA ____; Order No. 745, 

Comm’r Moeller Dissent at 1 n.5 (“Significant barriers do exist which prevent 

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demand response from reaching its full potential.”), JA____. In these 

circumstances, the Commission has an obligation to remedy undue discrimination 

it detects in the wholesale market it regulates. See New York v. FERC, 535 U.S. at 

26-27 (agency has discretion only as to remedy). 

V. FERC’S DIRECTIVE REQUIRING COMPARABLE, NONDISCRIMINATORY COMPENSATION FOR QUALIFIED DEMAND 

RESPONSE RESOURCES IS REASONABLE AND SUPPORTED BY 

SUBSTANTIAL EVIDENCE 

Order No. 745 remedies ongoing, undue discrimination in organized 

wholesale energy markets by requiring System Operators to treat demand response 

resources participating in those markets comparably to supply resources in those 

same markets, upon satisfaction of two eligibility requirements. Generators, 

supporting intervenors (collectively, PPL) and supporting amici overlook or 

misunderstand the significance of the two mandatory eligibility requirements. 

Taking these requirements into account, the Commission’s decision to require 

LMP compensation at this time falls within the zone of reasonableness and is 

supported by substantial record evidence. 

A. LMP Is A Reasonable Choice Among Alternative Compensation 

Approaches 

The Commission’s selection of the locational marginal price as the 

preferred, just and reasonable, compensation approach is a reasonable choice; it 

reflects not only the value of demand response to the wholesale energy markets, 

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but also the Commission’s evaluation of market imperfections, and its balancing of 

the competing interests at stake. Before the Commission, parties advocated a 

range of possible rates, above, below, and at LMP. See Order No. 745 P 45 

(summarizing range of positions), JA ____. Ultimately, the Commission 

determined that demand response resources should be compensated just like 

supply-side resources, based on the contribution they make to the wholesale energy 

markets. 

The locational marginal price “represents the marginal value of an increase 

in supply or a reduction in consumption at each node within” a System Operator’s 

market. Order No. 745-A P 73, JA ____; see also id. P 36, JA ____; Order No. 

745 P 67 (“payment of LMP represents the marginal value of a decrease in 

demand”), JA ____. For this reason, “LMP has been the primary mechanism for 

compensating generation resources clearing in the organized wholesale energy 

markets since their formation.” Order No. 745-A P 73, JA ____. As the 

Commission explained, “payment of LMP [to demand resources] is appropriate as 

it represents the value of the contribution of demand to the market during those 

periods in which demand response provides net benefits.” Id. P 60, JA ____; see 

also, e.g., Order No. 745 P 47 (“paying demand response resources the LMP will 

compensate those resources in a manner that reflects the marginal value of the 

resource to each” System Operator), JA ____; see Order No. 745-A P 54 (same), 

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JA ____. As addressed in detail below, the two eligibility requirements imposed 

on demand response resources participating in organized wholesale energy markets 

ensure that the market receives this value. As such, compensation below the same 

market price paid to generation resources would be unjust, unreasonable and 

unduly discriminatory. See supra Pt. IV (need for reform). 

Before the Commission, Generators and their allies, demand response 

providers and supporters, state commissions and others advocated varying levels of 

compensation for demand response resources participating in wholesale energy 

markets. Some entities supported the Commission’s proposal in the Proposed 

Rule, payment of the market price, in all hours, without qualifying conditions. See 

Proposed Rule P 11, JA ____; see, e.g., Joint Consumer Advocates, Comments at 2 

(May 13, 2010) (comments of consumer advocates of Pennsylvania, Ohio, 

Connecticut and Maryland), R. 66, JA ____; Demand Response Supporters, 

Comments at 2 (May 13, 2010), R. 104, JA ____. Others advocated for LMP less 

certain values, including the retail price of energy (frequently abbreviated as “G”). 

See, e.g., Order No. 745 P 24, JA ___; see also Generator Br. 51; PPL Br. 28-31. 

And still others supported LMP with additional compensation to reflect the 

additional benefits demand response provides to the wholesale energy markets. A 

group of steel producers, most notably, championed a rate of “LMP plus a share of 

the system benefits that are a consequence of the demand response,” so-called 

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“LMP Plus.” Steel Producers, Comments at 4 (May 13, 2010), R. 93, JA ____; see 

also Wal-Mart Stores, Inc., Comments at 9 (May 13, 2010), R. 113, JA ____ 

(supporting LMP as a minimum, particularly in light of the environmental benefits 

of demand response). 

Each of these groups claims the support of economic policy and principles. 

The Commission’s analysis, however, “takes into account both the economic 

analysis of the markets subject to [its] jurisdiction, and the practical realities of 

how those markets operate.” Order No. 745 P 46 (citing, e.g., Elizabethtown Gas 

Co. v. FERC, 10 F.3d 866, 872 (D.C. Cir. 1993) (“It is the FERC’s established 

policy to consider equitable factors in designing rates. . . . It is hardly arbitrary or 

capricious so to temper the dictates of theory by reference to their consequences in 

practice.”)), JA ____. Moreover, the Commission alone, not the parties with 

competing interests, has “wide discretion to balance competing equities against the 

backdrop of the public interest.” Id. (citation omitted). 

Nonetheless, commenters representing a variety of perspectives support the 

Commission’s decision to pay LMP under the specified conditions. Order No. 745 

P 47 (citing comments), JA ____; see also, New York State Public Service 

Commission, Comments at 4, 7 (explaining that New York market currently 

compensates at LMP above a threshold price, but participation remains low) (May 

13, 2010), R. 44, JA ____, ____; National Grid, Comments at 3-4 (May 13, 2010) 

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(supporting LMP with net benefits test), R. 92, JA ____-__; NSTAR, Comments at 

3 (May 14, 2010) (same), R. 130, JA ____; New York State Consumer Protection 

Board, Comments at 1 (Sept. 30, 2010) (describing LMP subject to net benefits test 

as the “middle ground”), R. 173, JA ____. 

Notwithstanding the Commission’s caution against relying solely on 

“textbook economic analysis,” Generators continue to do so. Order No. 745 P 46, 

JA ____; see Generator Br. 53; Amici Br. 4. In reality, however, “markets are not 

perfect.” Morgan Stanley, 554 U.S. at 547. See also Illinois Brick Co. v. Illinois, 

431 U.S. 720, 743 (1977) (“in the real economic world rather than an economist’s 

hypothetical model, the latter’s drastic simplifications generally must be 

abandoned”) (internal citation omitted). Ultimately, and as further demonstrated in 

the subsequent discussion, the Commission’s selection of the locational marginal 

price as the appropriate compensation for qualified demand response resources 

represents an informed choice among disputing experts. Alternative approaches, 

such as that promoted by the dissenting Commissioner, see Order No. 745, 

Comm’r Moeller Dissent at 11, JA ____, are not necessarily unreasonable, nor 

must the Commission or the Court determine that they are each unreasonable. See 

Cogeneration Ass’n of Cal., 525 F.3d at 1283 (“the question [the Court] must 

answer . . . is not whether record evidence supports [the petitioner’s] version of 

events, but whether it supports FERC’s”). This is “a classic example of a factual 

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dispute the resolution of which implicates substantial agency expertise,” and thus 

warrants the Court’s deference. Wisconsin Valley, 236 F.3d at 746-747 (quoting 

Marsh v. Oregon Nat. Resources Council, 490 U.S. 360, 376 (1989)). 

B. Paying LMP To Demand Response Resources That Satisfy The 

Two Eligibility Requirements Is Appropriate 

1. Generators overlook the significance of the balancing and 

cost-effectiveness tests 

 Demand response resources participating in wholesale energy markets will 

receive the locational marginal price only if they satisfy two eligibility 

requirements. First, demand response resources must have the ability to balance 

supply and demand in the System Operator’s market, just as generation can. Order 

No. 745 P 47, JA ____. Second, eligible demand response resources must be costeffective, under a net benefits test outlined in the final rule. Id. PP 47-48, JA ____-

__. These requirements, described in detail below, ensure that demand response 

resources are comparable to supply-side resources, and prevent undue 

discrimination. 

 First, in order to qualify for compensation at the market price, demand 

response resources must be able to balance supply and demand in the System 

Operator’s market. Id. PP 47-49, JA ____-__. As the Commission explained, “a 

power system must be operated so that there is real-time balance of generation and 

load, supply and demand.” Id. P 49, JA ____. Generators do not appear (Br. 48-

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49) to dispute the Commission’s finding that the system can be balanced through 

either an increase in supply or a decrease in demand. Id. (citing, e.g., Statement of 

Mr. Ott, PJM Interconnection, LLC, at 1 (Sept. 13, 2010), R. 171, JA____), JA 

____; see also id. P 20 (numerous commenters agree “that an increment of 

generation is comparable to a decrement of load for purposes of balancing supply 

and demand in the day-ahead and real-time energy markets”) (citing, e.g., Demand 

Response Supporters, Reply Comments, Kahn Reply Aff. at 2, JA ____; Verso, 

Comments at 3-4 (May 13, 2010), R. 55, JA ____; Occidental, Comments at 11 

(May 13, 2010), R. 84, JA ____), JA ____. As expert witness Dr. Alfred Kahn 

explained, because demand response can balance supply and demand just like 

supply-side resources, “[demand response] is in all essential respects economically 

equivalent to supply response.” Kahn Reply Aff. at 2, JA ____; see also Dr. 

Charles Cicchetti, Comments at 4 (Apr. 27, 2010) (supporting Kahn), R. 6, JA 

____. Amici economists attempt an analogy to the market for widgets, but fail to 

acknowledge that the widget market does not require real-time balancing of supply 

and demand. See Amici Br. 18. 

Second, to be eligible for LMP compensation, a demand response resource 

must qualify as cost-effective under the test outlined in Order No. 745. Order No. 

745 PP 47-48, JA ____-__. The goal of the cost-effectiveness standard is to ensure 

that the total cost savings from dispatch of demand response resources exceed the 

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cost of acquiring those resources. Id. PP 50, 53 JA ____, ____. The Commission 

considered commenters’ widely varying proposals for achieving this result, id. PP 

68-76, JA ____-__, ultimately issuing two, related directives. Id. P 78, JA ____. 

First, it selected a net benefits test using historical data to develop a price threshold 

for implementation. Id. Second, it described a potentially preferable method, 

incorporation of a cost-effectiveness test into the real-time dispatch algorithm, for 

which it directed additional study. Id. 

The net benefits test protects consumers by limiting the period during which 

demand response resources must be paid LMP to those times when “the nature of 

the supply curve is such that small decreases in generation being called to serve 

load will result in price decreases sufficient to offset” the cost of acquiring the 

demand response. Order No. 745 P 80, JA ____. As the Commission explained, 

“[w]hen demand response produces a sufficient reduction in LMP to cover the 

increased billing costs imposed on remaining customers, it is beneficial to 

customers; when the reduction does not cover costs, the demand response is not 

beneficial.” Order No. 745-A P 91, JA ____; see also Order No. 745 P 53, JA 

____. When this threshold of cost coverage is not met, the System Operator is not 

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required to pay LMP, but rather follows its existing tariff.7

 Order No. 745-A P 

131, JA ____. 

2. Qualified demand response resources are similarly situated 

with supply resources in wholesale energy markets 

 Demand response resources that satisfy the balancing and cost-effectiveness 

tests are similarly situated with supply-side resources participating in organized 

wholesale energy markets. As such, paying these resources the same rate does not 

result in undue discrimination. Generators and PPL allege differences between the 

resources, but any such differences are not relevant to the function of the resources 

in the market. 

 The Commission does not claim that demand response and generation are 

identical in every respect. Order No. 745-A P 57, JA ____. Generators err in their 

understanding of the context. As the Commission explained, the “electric industry 

requires near instantaneous balancing of supply and demand at all times” and this 

need can be served by both changes in supply and demand. Order No. 745-A P 56, 

JA ____; Order No. 745 PP 54-55, JA ____. As it earlier did in Order No. 719, 

here the Commission found that comparability of demand response resources with 

 

7

 Though its brief is otherwise limited to cost allocation, California challenges this 

explanation of the role of the threshold with regard to existing tariff provisions. 

California Br. 24. California faults the Commission for not addressing this 

“obvious” issue (id.), but neither California nor any other party raised this issue on 

rehearing before the agency. California may not do so now. See supra p. 29 

(citing 16 U.S.C. § 825l(b)). 

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other resources involves “the technical capacity of a demand response resource to 

provide a particular service, not . . . whether the performance requirements of [that 

resource] are identical to a generation resource.” Id. The market requires services 

to balance supply and demand, and the Commission found that “both resources are 

equally able to assist” the System Operators with this service. Order No. 745-A P 

57 (citing Order No. 719 P 47, JA ____), JA ____. To the extent that experts 

disagree (see Amici Br. 16), the Commission’s reasoned determination deserves 

particular deference. See Florida Mun. Power Ag., 315 F.3d at 368. 

 Contrary to Generators’ assertions (Br. 48), the Commission recognized that 

demand response resources do not create electricity, but this is “not dispositive” in 

this context. Order No. 745-A P 56, JA____. Wholesale energy markets do not 

only require supply resources. The System Operator’s responsibility is to balance 

supply and demand, and both supply and demand resources can serve this need. 

Id. Generators would define the relevant point of comparison differently. But in 

the Commission’s expert view of the market it regulates, the value of resources 

capable of providing the same service to the market, balancing supply and demand, 

is the same. See Order No. 745 P 47, JA ____; see also Order No. 745-A P 54, JA 

____. See “Complex” Consol. Edison Co. of New York, Inc. v. FERC, 165 F.3d 

992, 1013 (D.C. Cir. 1999) (affirming agency’s finding of no undue discrimination 

based upon “relevant, significant” operational circumstances) (citing cases). 

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Generators also argue that because demand response resources do not bear 

the same costs as generators, the two types of resources are not similarly situated. 

Generator Br. 49-50. All resources incur different costs and, as explained below 

with regard to Generators’ preferred compensation method, the Commission does 

not (in the absence of market power) inquire into resources’ costs of production. 

Order No. 745 P 62, JA ____; Order No. 745-A P 80, JA ____. The costs or 

benefits of production are not relevant to whether a resource has the capability to 

provide the service required by the System Operator. 

 Likewise, PPL (Br. 16) misses the mark in claiming that the two resource 

types are not similarly situated because demand response resources are not 

regulated as public utilities, and do not make wholesale sales in the energy 

markets. Regulatory requirements, which vary among types of generators as well, 

do not alter a resource’s ability to provide balancing services to a System Operator. 

Moreover, demand response resources that participate in wholesale energy markets 

are subject to the rules applicable to all market participants, as well as specific 

demand response measurement and verification requirements not applicable to 

supply resources. See Order No. 745 PP 93-95, JA ____-__. 

3. Paying qualified demand response resources LMP does not 

result in a subsidy or overcompensation 

 The Commission reasonably concluded that implementation of LMP under 

the limited conditions described by the balancing and cost-effectiveness tests will 

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ensure that neither overcompensation nor a subsidy occurs. See Order No. 745-A 

P 64, JA ____. Generators err in arguing (Br. 4) that the agency “largely ignored” 

compensation issues. 

 Where demand response resources provide balancing capability to the 

wholesale energy market and are cost-effective, i.e., they satisfy the net benefits 

test, prices are determined competitively in the market and there is no 

overcompensation or subsidy. See Order No. 745 P 61, JA ____. The relevant 

inquiry examines the market, and the service it requires, not the particular costs 

and benefits of each individual resource. 

 Using this framework, the Commission examined whether demand response 

resources are cost-effective in the wholesale energy market and, here, answers yes. 

Id. Dr. Kahn’s testimony supports the Commission. As he explained, 

Does this plan involve double compensation, as [Dr.] Hogan asserts, 

at the expense of power generators — of successful bidders promising 

to induce efficient demand curtailment and of consumers induced to 

practice it? Certainly not: the decrease in the revenue of the 

generators is (and consequent savings by consumers are) matched by 

the savings in their (marginal) costs of generating that power; the 

successful bidders for the opportunity to induce that consumer 

response are compensated for the costs of those efforts by the pool, 

whose (marginal) costs they save by assisting consumers to reduce 

their purchases. 

Id. P 31 (quoting Kahn Reply Aff. at 10, JA ____), JA ____; see also Order No. 

745-A P 58 (citing Kahn Reply Aff. at 9-10, JA ____-__), JA ____; Demand 

Response Supporters, Comments and Protest at 7, Docket No. EL09-68 (Sept. 16, 

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2009) (citing affidavits of Drs. Kahn and Woychik), JA ____. 

 Generators provide no basis for singling out demand response resources for 

an examination of costs and benefits of production in relation to compensation. 

Order No. 745 P 62, JA ____; see also Order No. 745-A P 80, JA ____. The retail 

cost of energy, which Generators claim should be subtracted from any price paid to 

qualified demand response providers, reflects a demand response provider’s cost of 

production. Order No. 745-A P 65, JA ____. In other words, and as Generators 

seem to recognize (Br. 53-54), this cost factors into a demand response provider’s 

economic decision of how much demand reduction to produce at what price. Costs 

of production for supply-side resources likewise vary and may be positive or 

negative, depending on factors such as fuel costs, location, regulatory requirements 

and applicable subsidies. Generators do not dispute, as the Commission explained, 

that a demand response provider’s avoided retail purchase functions much like 

renewable energy certificates or tax credits. Order No. 745-A P 65 n.122 (citing, 

e.g., Viridity Comments at 8, JA ____), JA ____. 

 Moreover, the Commission recognized practical and technical difficulties 

with the proposal to reduce the market price by the retail rate. Order No. 745 P 63 

(noting practical difficulties of implementation and potential consumer 

uncertainty) (citing New York Commission, Comments at 8, JA ____), JA ____. 

Thus, the Commission adequately responded to Generators’ arguments. See Nat’l 

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Ass’n, 475 F.3d at 1285 (finding that Commission need not address 

testimony directly where it has addressed the issues presented). 

 The Commission recognized that it has approved different methods of 

compensation for demand response, including variations on LMP, in different 

wholesale energy markets, over the past several years. Order No. 745 P 14, JA 

____. Generators and supporters rely specifically on PJM Industrial Customer 

Coalition, 121 FERC ¶ 61,315, and accuse the Commission of failing to explain its 

approval of LMP here in light of its earlier characterization of PJM’s particular 

LMP program as an inappropriate subsidy. See id. (denying a complaint to prevent 

the termination of that program under a sunset provision). See Generators Br. 50-

51; Amici Br. 25; PPL Br. 13-14. To the extent Order No. 745 reflects a change in 

Commission policy, the Proposed Rule explained that experiences in PJM 

following that order actually prompted the Commission’s rulemaking here.8

 

Proposed Rule P 10, JA ____. After PJM Industrial Customer Coalition, the 

Commission observed reduced and inadequate demand response participation in 

PJM and elsewhere, which it attributed to inadequate compensation. Id. (Notably, 

the PJM Industrial Customer Coalition withdrew its request for rehearing of the 

 

8

 With the Proposed Rule, the Commission terminated a docket involving PJM’s 

proposed revisions to its demand response compensation program (Docket No. 

EL09-68), and took administrative notice of the record in order to avoid the need 

for refiling of evidentiary submissions. Proposed Rule P 23, JA ___.

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2007 order after PJM proposed an enhanced demand response compensation 

program. Thus, the Commission never acted on rehearing in that case.) 

 In any event, the Commission addressed Generators’ “subsidy” argument on 

rehearing, and made clear that its selection of LMP here is conditioned upon 

satisfaction of the balancing capability and net benefits test. Order No. 745-A P 

58, JA ____. Neither PJM Industrial Customer Coalition nor other existing or 

former demand response compensation programs addressed or allowed LMP 

subject to these particular tests, which form the cornerstone of the Commission’s 

program here. Thus the Commission adequately responded to Generators’ 

concerns that, having previously chosen not to employ or continue variations on 

LMP compensation in a given regional market, it is precluded from selecting LMP 

as a just and reasonable compensation method at this time, under these conditions. 

See Order No. 745-A PP 40, 58, JA ____, ____. See Sacramento Mun. Util. Dist., 

616 F.3d at 530 (Commission “reasonably responded to the issues raised by” the 

witness). 

 Substantial evidence supports the Commission’s finding that there is no 

overcompensation here, and Generators’ effort to turn the Commission’s weighing 

of the evidence into an exercise in counting pieces of evidence is contrary to the 

statute. Fla. Gas Transmission Co. v. FERC, 604 F.3d 636, 645 (D.C. Cir. 2010) 

(“The substantial evidence inquiry turns not on how many discrete pieces of 

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evidence the Commission relies on, but on whether that evidence adequately 

supports its ultimate decision.”). 

4. Paying qualified demand response resources LMP results in 

additional benefits to organized wholesale energy markets 

 The Commission has demonstrated that Order No. 745 provides comparable 

compensation for comparable resources participating in wholesale energy markets. 

Comparability is enough. But paying qualified demand response resources LMP 

will also reduce barriers to demand response participation in wholesale energy 

markets and, as a result, help to remove identified market imperfections. 

Generators and their supporters do not seem to dispute these benefits of demand 

response, but claim that Order No. 745 will induce too much demand response 

participation and reduce market prices too much. Generator Br. 57; PPL Br. 20; 

Amici Br. 18. Generators again overlook the role of the balancing and costeffectiveness tests, but, more important, fail to understand the Commission’s 

statutory role. 

 As the Commission explained, barriers to demand response participation in 

wholesale energy markets create an inelastic demand curve, resulting in higher 

wholesale prices than the market would produce with greater demand response 

participation. Order No. 745-A P 63, JA ____. But, “[p]aying the full marginal 

value of energy to demand response will provide the proper level of investment 

resources available for capital improvements,” including enabling technologies. 

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Order No. 745-A P 62 (citing EnerNOC, Comments at 4, JA ____), JA ____; see 

also New York Commission, Comments at 5-6, JA ____-__. 

 In turn, increased demand response participation in wholesale energy 

markets will “mov[e] prices closer to the levels that would result if all demand 

could respond to the marginal cost of energy.” Order No. 745 P 59, JA ____. See 

also id. P 10 (citing study showing that demand response can reduce the need for 

more costly resources during periods of high demand), JA ____. As the 

Commission earlier explained in the Order No. 719 rulemaking, “enabling 

demand-side resources, as well as supply-side resources, improves the economic 

operation of electric power markets by aligning prices more closely with the value 

customers place on electric power.” Order No. 719 P 16, JA ____; see also Order 

No. 745-A P 61 (paying LMP provides demand response resources that “can 

respond to price signals with the accurate market price signal for such response”), 

JA ____. Increased demand response participation helps to achieve the 

Commission’s goals by increasing competition, which will help to produce just and 

reasonable and, in this case, potentially lower, rates. See Order No. 745-A P 61, 

JA ____. 

 Increased competition, whether the market ultimately selects demand or 

supply-side resources, can also limit potential opportunities for market power. 

Order No. 745-A P 77, JA ____. Generators, however, place undue emphasis on 

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market power mitigation here. Br. 57-60. While increased competition can limit 

opportunities for market power, the Commission explained that market power 

mitigation is not the subject of this rulemaking. Order No. 745-A P 77, JA ____. 

 Generators essentially complain about the potential for increased 

competition.9

 See, e.g., New York Consumer Protection Board, Comments at 3-4 

(explaining generators’ self-interested economic analysis), JA ____-__. Under 

Order No. 745, qualified demand response resources will be treated by the System 

Operators “in a manner similar to a generation resource that is introduced into a 

pool of supply-side resources.” Order No. 745-A P 67, JA ____. But no evidence 

suggests that, with increased competition, LMP will no longer reflect “the marginal 

value of a resource’s contribution to the market, regardless of whether that 

resource provides generation or demand response.” Id. P 68, JA ____. Nor does 

evidence suggest that, with increased competition and possibly lower wholesale 

prices, wholesale supplies will exit the market to such an extent that system 

reliability will be threatened. (Indeed, demand response resources can provide 

significant reliability benefits by quickly balancing the grid. Order No. 745 P 10 & 

nn.19-20 (citing studies on reliability benefits), JA ____.) In the absence of undue 

 

9

 PPL’s suggestion (Br. 19-20) of a constitutional takings claim may only be raised 

in the United States Court of Claims. See 28 U.S.C. § 1346(a)(2); Order No. 745-

A P 68 n.125 (citing cases).

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discrimination or preference, as here, Generators’ claims fail. Order No. 745-A P 

67, JA ____. 

 Further, the Commission has long held that payment of LMP to supply 

resources encourages more efficient supply and demand decisions in both the short 

run and long run. Order No. 745 P 62 (citing New England Power Pool, 101 

FERC ¶ 61,344 P 35 (2002) (denying request to delay LMP implementation)), JA 

____. The same rule applies to demand response compensation, and Generators 

have not demonstrated otherwise. Id. 

 Moreover, the Commission’s statutory obligation is to strike a balance that 

promotes the (sometimes conflicting) goals of preventing excessive rates and 

encouraging adequate supply. See, e.g., Consol. Edison Co. v. FERC, 510 F.3d 

333, 342 (D.C. Cir. 2007) (citing cases); see also FPC v. Sierra Pacific Power Co., 

350 U.S. 348, 355 (1956) (“purpose of the power given the Commission by [FPA] 

section 206(a) is the protection of the public interest, as distinguished from the 

private interests of the utilities”). The Commission’s job is not to protect 

incumbent market participants from increased competition. See, e.g., FPC v. 

Conway, 426 U.S. at 279 (Commission’s obligations under the FPA reflect 

anticompetitive and antitrust concerns) (citing cases). 

 Rather, the Commission’s informed ratemaking choice here reflects its duty 

to “choose a [ratemaking] method that entails an appropriate ‘balancing of the 

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investor and the consumer interests.’” Morgan Stanley, 554 U.S. at 532 (quoting 

FPC v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944)). Upon consideration of 

the competing equities, and taking into account its broad public interest obligation, 

the Commission determined that the potential for increased competition and lower 

rates does not render compensation in wholesale energy markets unjust and 

unreasonable. This expert balance is entitled to respect. See Blumenthal, 552 F.3d 

at 885 (FERC “must be given the latitude to balance the competing considerations 

and decide on the best resolution”). Generators may disagree with this balance, 

and prefer a different rate, but that does not render the Commission’s ratemaking 

choice, supported here by substantial evidence, unreasonable or arbitrary. See 

OXY USA, Inc. v. FERC, 64 F.3d 679, 692 (D.C. Cir. 1995) (a “just and 

reasonable” rate “need not be the only reasonable methodology, or even the most 

accurate”). 

 C. The Commission Adequately Explained Its Decision To Require A 

More Uniform Approach To Demand Response Compensation 

 Generators, their supporters, and California claim that the Commission’s 

decision now to require a more uniform approach to demand response 

compensation in organized wholesale energy markets, including both the 

compensation level and cost allocation (challenged only by California), cannot be 

squared with the Commission’s prior approvals of demand response programs on a 

regional basis. Generator Br. 63-64; California Br. 24; PPL Br. 11. California’s 

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specific claims as to cost allocation are premature. See supra Pt. III. But, in any 

event, the Commission’s decision is fully supported by the record, and is not 

inconsistent with precedent, including its earlier Order No. 719 rulemaking. See

Order No. 745-A P 74, JA ____. 

In Order No. 745, the Commission recognized that previously, acting on a 

case-by-case basis, it had permitted varying methods for demand response 

compensation in wholesale energy markets. Order No. 745 P 14, JA ____; Order 

No. 745-A P 74, JA ____. Indeed, the Commission acknowledged the concerns of 

demand response providers that the lack of standardization itself presents a barrier 

to demand response participation in wholesale energy markets. Order No. 745 P 

43 (citing comments), JA ____; id. P 17 (“Based upon the record in this 

proceeding, the Commission herein requires greater uniformity in compensating 

demand response resources . . . .”), JA ____. 

Order No. 719 set the stage for adoption of the market price for 

compensation and explicitly left the door open to standardization in the future. 

First, Order No. 719 required that demand response resources participating in 

ancillary services markets would receive, as here, the market price. Order No. 745 

P 74 (citing Order No. 719 P 47, JA ____), JA ____; see also 18 C.F.R. § 

35.28(g)(1)(i)(A) (requiring comparable treatment for demand response resources 

providing ancillary services). Second, Order No. 719 set forth general guidelines 

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for allowing aggregator participation in wholesale markets, but declined to 

specifically address a number of issues, including the “double payment” issue 

identified by California (Br. 25), among others. Order No. 719 P 159, JA ____. 

Moreover, Order No. 719 highlighted the likelihood of further reforms. The 

Commission specifically found that “[g]iven this regional approach, we do not find 

that standardized technical issues or a pro forma set of market rules . . . is 

necessary at this time.” Id. P 160 (emphasis added). And the Commission 

required System Operators to report to the Commission on “the barriers to 

comparable treatment of demand response resources,” Order No. 719 P 261, JA 

____, including, among other things, “the need for and the ability to standardize 

terms, practices, rules and procedures associated with demand response.” Id. P 

260, JA ____; see id. P 274 (adopting report requirement), JA ____. 

That the Commission has now moved toward standardization is consistent 

with, and indeed a logical response to, Order No. 719. See Indiana, 668 F.3d at 

740 (upholding FERC’s interpretation of Order No. 719, in that case, under a 

“substantial deference” standard). See also Council of the City of New Orleans v. 

FERC, No. 11-1043, slip op. at 7 (D.C. Cir. Aug. 14, 2012) (not unreasonable for 

the agency to do, or not do, something it said it might do in an earlier order). 

Finally, Order No. 745 recognizes that further reforms may be appropriate in 

the future. Order No. 745 directs each System Operator to study the potential for 

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implementing software to integrate the billing unit effect into the real-time 

operation of the wholesale market. Order No. 745 PP 78, 84, JA ____, ____; see 

supra p. 17. While the Commission believes that this method may “more precisely 

identify when demand response resources are cost-effective,” it declined to direct 

implementation at this time, in light of technical issues. Id. P 78, JA ___. As the 

Commission explained on rehearing, it “can assess the feasibility of implementing 

a dynamic process . . . after it receives the studies.” Order No. 745-A P 128, JA 

____; see also Proposed Rule P 19 (“Given the current barriers to demand 

response, and the evolving nature of the technology enabling demand response, a 

perfect solution or payment scheme may not exist.”), JA ____. See Nat’l Ass’n of 

Broadcasters v. FCC, 740 F.2d 1190, 1207 (D.C. Cir. 1984) (“reform may take 

place one step at a time, addressing itself to the phase of the problem which seems 

most acute to the [regulatory] mind.”) (internal citation omitted). 

The Commission is confident that its compensation program will work as 

intended, in furtherance of statutory goals. See Elec. Consumers Res. Council, 407 

F.3d at 1239 (“the court will defer to the Commission’s predictive judgment” and 

the study and reporting requirement ensures the agency “will have the information 

needed to determine whether the rate design requires modification should [the] 

predictions fail to be borne out by experience”). If future studies and reports 

indicate otherwise, the Commission will take additional steps as necessary and 

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appropriate – as it did in moving from Order No. 719 to Order No. 745 – to 

improve market conditions. See Order No. 745-A P 128, JA ____. 

VI. ASSUMING JURISDICTION, ORDER NO. 745’S COST 

ALLOCATION APPROACH IS REASONABLE AND WELLSUPPORTED BY THE RECORD 

Before this Court, California argues for the first time that the Commission 

failed to adequately support the cost allocation guideline. California Br. 22-23. As 

demonstrated above (Pt. III), California lacks jurisdiction to raise this claim as a 

matter of ripeness or standing. But this claim faces an additional barrier: 

California failed to preserve it for review, as required by the Federal Power Act. 

Nonetheless, as explained below, the Commission’s orders reasonably reflect the 

established cost causation principle, and demonstrate that adherence to that 

principle is appropriate. 

On rehearing, the California System Operator and the California 

Commission argued that: 1) the existing California program is consistent with 

Order No. 745; and 2) if not, the Commission had inappropriately departed from 

California-specific precedent and Order No. 719. See California Commission, 

Rehearing Request, R. 241, JA ____; California System Operator, Rehearing 

Request, R. 242, JA ____. Neither party challenged the substance of the cost 

allocation guideline. Indeed, neither rehearing request uses the phrase “cost 

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causation,” or any similar phrasing. California’s failure to preserve this issue 

deprives the Court of jurisdiction. See supra p. 29 (citing 16 U.S.C. § 825l(b)). 

In any event, as the Commission explained, Order No. 745’s approach to 

cost allocation is consistent with the judicially-endorsed, “unremarkable principle” 

that costs generally follow benefits. Order No. 745 P 100 (citing cases), JA ____. 

California is correct that the Commission “is not bound to reject any rate 

mechanism that tracks the cost-causation principle less than perfectly.” California 

Br. 22-23 (citing Sithe/Independence Power Partners, L.P. v. FERC, 285 F.3d 1, 5, 

(D.C. Cir. 2002)). But it does not follow that the Commission cannot choose to 

follow the cost causation principle more closely in appropriate circumstances. See 

Order No. 745 P 100 (citing Midwest ISO Transmission Owners v. FERC, 373 F.3d 

1361, 1368 (D.C. Cir. 2004) (assessing compliance with the principle by 

“comparing the costs assessed against a party to the burdens imposed or benefits 

drawn by that party”); and Illinois Commerce Comm’n v. FERC, 576 F.3d 470, 476 

(7th Cir. 2009) (same)), JA ____. See also Transmission Access, 225 F.3d at 708

(affirming Commission’s reliance on cost causation).

Order No. 745 details, with discussion of the technical characteristics of the 

transmission system, why adherence to the cost causation principle is particularly 

appropriate here. As the Commission explained, the identification of customers 

benefitting from lower prices induced by dispatch of demand response depends 

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upon transmission constraints. Order No. 745 P 100, JA ____. Transmission 

constraints, or variations in or the absence of such constraints, cause the market 

price to vary by zone or other geographic area, and may depend on the time of day 

as well. Id. Accordingly, the Commission reasoned that the cost allocation 

method should reflect the degree to which market participants receive benefits 

from lower market prices. Id. P 101, JA ____. 

California’s claim that the Commission “fail[ed] to articulate a rational 

connection between the facts found and the choice made” (Br. 22) ignores Order 

No. 745’s discussion, invoking its technical expertise, that transmission constraints 

and related price differentials require that allocation more closely track benefits. 

See, e.g., Northern States Power Co., 30 F.3d at 180 (applying a highly deferential 

standard of review to technical matters). Accordingly, if the Court reaches the 

merits of this issue, the Commission should be affirmed. 

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80

CONCLUSION 

For the foregoing reasons, the petitions for review should be denied, to the 

extent not dismissed for lack of jurisdiction, and the orders on review should be 

upheld in their entirety. 

Respectfully submitted, 

 

Michael A. Bardee 

 General Counsel 

 Robert H. Solomon 

 Solicitor 

 /s/ Holly E. Cafer

Holly E. Cafer 

Attorney 

Federal Energy Regulatory 

 Commission 

888 First Street, NE 

Washington, D.C. 20426 

Phone: (202) 502-8485 

Fax: (202) 273-0901 

Email: holly.cafer@ferc.gov 

 

August 28, 2012 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 96 of 115
Electric Power Supply Association, et al. v. FERC Docket No. RM10-17 

D.C. Cir. No. 11-1486, et al. 

CERTIFICATE OF COMPLIANCE 

In accordance with Fed. R. App. P. 32(a)(7)(C), I certify that the Brief of 

Respondent Federal Energy Regulatory Commission contains 17,882 words, not 

including the (i) cover page, (ii) certificates of counsel, (iii) tables of contents and 

authorities, (iv) glossary, and (v) addendum. 

 

 /s/ Holly E. Cafer

Holly E. Cafer 

Attorney 

Federal Energy Regulatory 

 Commission 

888 First Street, NE 

Washington, D.C. 20426 

Phone: (202) 502-8485 

Fax: (202) 273-0901 

Email: holly.cafer@ferc.gov 

August 28, 2012 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 97 of 115
ADDENDUM 

STATUTES 

AND 

REGULATIONS 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 98 of 115
TABLE OF CONTENTS

 PAGE

STATUTES

Administrative Procedure Act 

5 U.S.C. § 706(2)(A).........................................................................A-1 

Energy Policy Act 

16 U.S.C. § 2642....................................................................A-2 

Federal Power Act 

Section 201, 16 U.S.C. § 824.....................................................A-4 

Section 205, 16 U.S.C. § 824d...................................................A-6 

Section 206, 16 U.S.C. § 824e...................................................A-7 

Section 313, 16 U.S.C. § 825l.....................................................A-8 

28 U.S.C. § 1346(a)(2)....................................................................A-9 

REGULATIONS

18 C.F.R. § 35.28(b)(4)..................................................................A-10 

18 C.F.R. § 35.28(g)(1)(i), (iii).........................................................A-11 

18 C.F.R. § 35.28(g)(1)(v)..............................................................A-12

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 99 of 115
Page 109 TITLE 5—GOVERNMENT ORGANIZATION AND EMPLOYEES § 706 

injunctive decree shall specify the Federal officer or officers (by name or by title), and their 

successors in office, personally responsible for 

compliance. Nothing herein (1) affects other limitations on judicial review or the power or duty 

of the court to dismiss any action or deny relief 

on any other appropriate legal or equitable 

ground; or (2) confers authority to grant relief if 

any other statute that grants consent to suit expressly or impliedly forbids the relief which is 

sought. 

(Pub. L. 89–554, Sept. 6, 1966, 80 Stat. 392; Pub. L. 

94–574, §1, Oct. 21, 1976, 90 Stat. 2721.) 

HISTORICAL AND REVISION NOTES

Derivation U.S. Code Revised Statutes and 

Statutes at Large 

.................. 5 U.S.C. 1009(a). June 11, 1946, ch. 324, §10(a), 

60 Stat. 243. 

Standard changes are made to conform with the definitions applicable and the style of this title as outlined 

in the preface to the report. 

AMENDMENTS

1976—Pub. L. 94–574 removed the defense of sovereign 

immunity as a bar to judicial review of Federal administrative action otherwise subject to judicial review. 

§ 703. Form and venue of proceeding 

The form of proceeding for judicial review is 

the special statutory review proceeding relevant 

to the subject matter in a court specified by 

statute or, in the absence or inadequacy thereof, 

any applicable form of legal action, including 

actions for declaratory judgments or writs of 

prohibitory or mandatory injunction or habeas 

corpus, in a court of competent jurisdiction. If 

no special statutory review proceeding is applicable, the action for judicial review may be 

brought against the United States, the agency 

by its official title, or the appropriate officer. 

Except to the extent that prior, adequate, and 

exclusive opportunity for judicial review is provided by law, agency action is subject to judicial 

review in civil or criminal proceedings for judicial enforcement. 

(Pub. L. 89–554, Sept. 6, 1966, 80 Stat. 392; Pub. L. 

94–574, §1, Oct. 21, 1976, 90 Stat. 2721.) 

HISTORICAL AND REVISION NOTES

Derivation U.S. Code Revised Statutes and 

Statutes at Large 

.................. 5 U.S.C. 1009(b). June 11, 1946, ch. 324, §10(b), 

60 Stat. 243. 

Standard changes are made to conform with the definitions applicable and the style of this title as outlined 

in the preface to the report. 

AMENDMENTS

1976—Pub. L. 94–574 provided that if no special statutory review proceeding is applicable, the action for judicial review may be brought against the United 

States, the agency by its official title, or the appropriate officer as defendant. 

§ 704. Actions reviewable

Agency action made reviewable by statute and 

final agency action for which there is no other 

adequate remedy in a court are subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of 

the final agency action. Except as otherwise expressly required by statute, agency action 

otherwise final is final for the purposes of this 

section whether or not there has been presented 

or determined an application for a declaratory 

order, for any form of reconsideration, or, unless 

the agency otherwise requires by rule and provides that the action meanwhile is inoperative, 

for an appeal to superior agency authority. 

(Pub. L. 89–554, Sept. 6, 1966, 80 Stat. 392.) 

HISTORICAL AND REVISION NOTES

Derivation U.S. Code Revised Statutes and 

Statutes at Large 

.................. 5 U.S.C. 1009(c). June 11, 1946, ch. 324, §10(c), 

60 Stat. 243. 

Standard changes are made to conform with the definitions applicable and the style of this title as outlined 

in the preface of this report. 

§ 705. Relief pending review 

When an agency finds that justice so requires, 

it may postpone the effective date of action 

taken by it, pending judicial review. On such 

conditions as may be required and to the extent 

necessary to prevent irreparable injury, the reviewing court, including the court to which a 

case may be taken on appeal from or on application for certiorari or other writ to a reviewing 

court, may issue all necessary and appropriate 

process to postpone the effective date of an 

agency action or to preserve status or rights 

pending conclusion of the review proceedings. 

(Pub. L. 89–554, Sept. 6, 1966, 80 Stat. 393.) 

HISTORICAL AND REVISION NOTES

Derivation U.S. Code Revised Statutes and 

Statutes at Large 

.................. 5 U.S.C. 1009(d). June 11, 1946, ch. 324, §10(d), 

60 Stat. 243. 

Standard changes are made to conform with the definitions applicable and the style of this title as outlined 

in the preface of this report.

§ 706. Scope of review 

To the extent necessary to decision and when 

presented, the reviewing court shall decide all 

relevant questions of law, interpret constitutional and statutory provisions, and determine 

the meaning or applicability of the terms of an 

agency action. The reviewing court shall— 

(1) compel agency action unlawfully withheld or unreasonably delayed; and 

(2) hold unlawful and set aside agency action, findings, and conclusions found to be— 

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with 

law; 

(B) contrary to constitutional right, 

power, privilege, or immunity; 

(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory 

right; 

(D) without observance of procedure required by law; 

A-1

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 100 of 115
Page 2059 TITLE 16—CONSERVATION § 2642 

1So in original. Probably should be ‘‘section’’.

lished by paragraphs (11) through (13) of section

2621(d) of this title, the reference contained in

this subsection1 to November 9, 1978, shall be

deemed to be a reference to August 8, 2005. In

the case of the standard established by paragraph (14) of section 2621(d) of this title, the reference contained in this subsection1 to November 9, 1978, shall be deemed to be a reference to

August 8, 2005. In the case of each standard established by paragraph (15) of section 2621(d) of

this title, the reference contained in this subsection1 to November 9, 1978, shall be deemed to

be a reference to August 8, 2005.

(Pub. L. 95–617, title I, §124, Nov. 9, 1978, 92 Stat.

3131; Pub. L. 109–58, title XII, §§1251(b)(3)(B),

1252(i)(2), 1254(b)(3)(B), Aug. 8, 2005, 119 Stat. 963,

967, 971.)

AMENDMENTS

2005—Pub. L. 109–58, §1254(b)(3)(B), inserted at end ‘‘In

the case of each standard established by paragraph (15)

of section 2621(d) of this title, the reference contained

in this subsection to November 9, 1978, shall be deemed

to be a reference to August 8, 2005.’’

Pub. L. 109–58, §1252(i)(2), inserted at end ‘‘In the case

of the standard established by paragraph (14) of section

2621(d) of this title, the reference contained in this subsection to November 9, 1978, shall be deemed to be a reference to August 8, 2005.’’

Pub. L. 109–58, §1251(b)(3)(B), inserted at end ‘‘In the

case of each standard established by paragraphs (11)

through (13) of section 2621(d) of this title, the reference

contained in this subsection to November 9, 1978, shall

be deemed to be a reference to August 8, 2005.’’

SUBCHAPTER IV—ADMINISTRATIVE

PROVISIONS 

§ 2641. Voluntary guidelines

The Secretary may prescribe voluntary guidelines respecting the standards established by

sections 2621(d) and 2623(b) of this title. Such

guidelines may not expand the scope or legal effect of such standards or establish additional

standards respecting electric utility rates.

(Pub. L. 95–617, title I, §131, Nov. 9, 1978, 92 Stat.

3131.) 

§ 2642. Responsibilities of Secretary

(a) Authority

The Secretary may periodically notify the

State regulatory authorities, and electric utilities identified pursuant to section 2612(c) of this

title, of—

(1) load management techniques and the results of studies and experiments concerning

load management techniques;

(2) developments and innovations in electric

utility ratemaking throughout the United

States, including the results of studies and

experiments in rate structure and rate reform;

(3) methods for determining cost of service;

(4) any other data or information which the

Secretary determines would assist such authorities and utilities in carrying out the provisions of this chapter; and

(5) technologies, techniques, and rate-making methods related to advanced metering and

communications and the use of these technologies, techniques and methods in demand

response programs.

(b) Technical assistance

The Secretary may provide such technical assistance as he determines appropriate to assist

the State regulatory authorities in carrying out

their responsibilities under subchapter II and as

is requested by any State regulatory authority

relating to the standards established by subchapter II.

(c) Appropriations

There are authorized to be appropriated to

carry out the purposes of subsection (b) of this

section not to exceed $1,000,000 for each of the

fiscal years 1979 and 1980.

(d) Demand response

The Secretary shall be responsible for—

(1) educating consumers on the availability,

advantages, and benefits of advanced metering

and communications technologies, including

the funding of demonstration or pilot projects;

(2) working with States, utilities, other energy providers and advanced metering and

communications experts to identify and address barriers to the adoption of demand response programs; and

(3) not later than 180 days after August 8,

2005, providing Congress with a report that

identifies and quantifies the national benefits

of demand response and makes a recommendation on achieving specific levels of such benefits by January 1, 2007.

(Pub. L. 95–617, title I, §132, Nov. 9, 1978, 92 Stat.

3131; Pub. L. 109–58, title XII, §1252(c), (d), Aug.

8, 2005, 119 Stat. 965.)

REFERENCES IN TEXT

This chapter, referred to in subsec. (a)(4), was in the

original ‘‘this title’’, meaning title I (§101 et seq.) of

Pub. L. 95–617, Nov. 9, 1978, 92 Stat. 3120, which enacted

subchapters I to IV of this chapter and section 6808 of

Title 42, The Public Health and Welfare, and amended

sections 6802 to 6807 of Title 42. For complete classification of title I to the Code, see Tables.

AMENDMENTS

2005—Subsec. (a)(5). Pub. L. 109–58, §1252(c), added par.

(5). 

Subsec. (d). Pub. L. 109–58, §1252(d), added subsec. (d).

DEMAND RESPONSE ASSISTANCE

Pub. L. 109–58, title XII, §1252(e), (f), Aug. 8, 2005, 119

Stat. 965, 966, provided that:

‘‘(e) DEMAND RESPONSE AND REGIONAL COORDINATION.—

‘‘(1) IN GENERAL.—It is the policy of the United

States to encourage States to coordinate, on a regional basis, State energy policies to provide reliable

and affordable demand response services to the public.

‘‘(2) TECHNICAL ASSISTANCE.—The Secretary [of Energy] shall provide technical assistance to States and

regional organizations formed by two or more States

to assist them in—

‘‘(A) identifying the areas with the greatest demand response potential;

‘‘(B) identifying and resolving problems in transmission and distribution networks, including

through the use of demand response;

‘‘(C) developing plans and programs to use demand response to respond to peak demand or emergency needs; and

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‘‘(D) identifying specific measures consumers can

take to participate in these demand response programs.

‘‘(3) REPORT.—Not later than 1 year after the date

of enactment of the Energy Policy Act of 2005 [Aug.

8, 2005], the [Federal Energy Regulatory] Commission

shall prepare and publish an annual report, by appropriate region, that assesses demand response resources, including those available from all consumer

classes, and which identifies and reviews—

‘‘(A) saturation and penetration rate of advanced

meters and communications technologies, devices

and systems;

‘‘(B) existing demand response programs and

time-based rate programs;

‘‘(C) the annual resource contribution of demand

resources; 

‘‘(D) the potential for demand response as a quantifiable, reliable resource for regional planning purposes;

‘‘(E) steps taken to ensure that, in regional transmission planning and operations, demand resources

are provided equitable treatment as a quantifiable,

reliable resource relative to the resource obligations of any load-serving entity, transmission provider, or transmitting party; and

‘‘(F) regulatory barriers to improve customer participation in demand response, peak reduction and

critical period pricing programs.

‘‘(f) FEDERAL ENCOURAGEMENT OF DEMAND RESPONSE

DEVICES.—It is the policy of the United States that

time-based pricing and other forms of demand response,

whereby electricity customers are provided with electricity price signals and the ability to benefit by responding to them, shall be encouraged, the deployment

of such technology and devices that enable electricity

customers to participate in such pricing and demand

response systems shall be facilitated, and unnecessary

barriers to demand response participation in energy,

capacity and ancillary service markets shall be eliminated. It is further the policy of the United States that

the benefits of such demand response that accrue to

those not deploying such technology and devices, but

who are part of the same regional electricity entity,

shall be recognized.’’

§ 2643. Gathering information on costs of service

(a) Information required to be gathered

Each electric utility shall periodically gather

information under such rules (promulgated by

the Commission) as the Commission determines

necessary to allow determination of the costs

associated with providing electric service. For

purposes of this section, and for purposes of any

consideration and determination respecting the

standard established by section 2621(d)(2) of this

title, such costs shall be separated, to the maximum extent practicable, into the following components: customer cost component, demand cost

component, and energy cost component. Rules

under this subsection shall include requirements

for the gathering of the following information

with respect to each electric utility—

(1) the costs of serving each electric consumer class, including costs of serving different consumption patterns within such class,

based on voltage level, time of use, and other

appropriate factors;

(2) daily kilowatt demand load curves for all

electric consumer classes combined representative of daily and seasonal differences in demand, and daily kilowatt demand load curves

for each electric consumer class for which

there is a separate rate, representative of

daily and seasonal differences in demand;

(3) annual capital, operating, and maintenance costs—

(A) for transmission and distribution services, and

(B) for each type of generating unit; and

(4) costs of purchased power, including representative daily and seasonal differences in

the amount of such costs.

Such rules shall provide that information required to be gathered under this section shall be

presented in such categories and such detail as

may be necessary to carry out the purposes of

this section.

(b) Commission rules

The Commission shall, within 180 days after

November 9, 1978, by rule, prescribe the methods,

procedure, and format to be used by electric

utilities in gathering the information described

in this section. Such rules may provide for the

exemption by the Commission of an electric

utility or class of electric utilities from gathering all or part of such information, in cases

where such utility or utilities show and the

Commission finds, after public notice and opportunity for the presentation of written data,

views, and arguments, that gathering such information is not likely to carry out the purposes of

this section. The Commission shall periodically

review such findings and may revise such rules.

(c) Filing and publication

Not later than two years after November 9,

1978, and periodically, but not less frequently

than every two years thereafter, each electric

utility shall file with—

(1) the Commission, and

(2) any State regulatory authority which has

ratemaking authority for such utility,

the information gathered pursuant to this section and make such information available to the

public in such form and manner as the Commission shall prescribe. In addition, at the time of

application for, or proposal of, any rate increase, each electric utility shall make such information available to the public in such form

and manner as the Commission shall prescribe.

The two-year period after November 9, 1978,

specified in this subsection may be extended by

the Commission for a reasonable additional period in the case of any electric utility for good

cause shown.

(d) Enforcement

For purposes of enforcement, any violation of

a requirement of this section shall be treated as

a violation of a provision of the Energy Supply

and Environmental Coordination Act of 1974 [15

U.S.C. 791 et seq.] enforceable under section 12 of

such Act [15 U.S.C. 797] (notwithstanding any expiration date in such Act) except that in applying the provisions of such section 12 any reference to the Federal Energy Administrator

shall be treated as a reference to the Commission.

(Pub. L. 95–617, title I, § 133, Nov. 9, 1978, 92 Stat.

3132.) 

REFERENCES IN TEXT

The Energy Supply and Environmental Coordination

Act of 1974, referred to in subsec. (d), is Pub. L. 93–319,

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with the purposes of this subchapter, or other 

applicable law, the Commission may refer the 

dispute to the Commission’s Dispute Resolution 

Service. The Dispute Resolution Service shall 

consult with the Secretary and the Commission 

and issue a non-binding advisory within 90 days. 

The Secretary may accept the Dispute Resolution Service advisory unless the Secretary finds 

that the recommendation will not adequately 

protect the reservation. The Secretary shall 

submit the advisory and the Secretary’s final 

written determination into the record of the 

Commission’s proceeding. 

(b) Alternative prescriptions 

(1) Whenever the Secretary of the Interior or 

the Secretary of Commerce prescribes a fishway 

under section 811 of this title, the license applicant or any other party to the license proceeding may propose an alternative to such prescription to construct, maintain, or operate a fishway. 

(2) Notwithstanding section 811 of this title, 

the Secretary of the Interior or the Secretary of 

Commerce, as appropriate, shall accept and prescribe, and the Commission shall require, the 

proposed alternative referred to in paragraph 

(1), if the Secretary of the appropriate department determines, based on substantial evidence 

provided by the license applicant, any other 

party to the proceeding, or otherwise available 

to the Secretary, that such alternative— 

(A) will be no less protective than the fishway initially prescribed by the Secretary; and 

(B) will either, as compared to the fishway 

initially prescribed by the Secretary— 

(i) cost significantly less to implement; or 

(ii) result in improved operation of the 

project works for electricity production. 

(3) In making a determination under paragraph (2), the Secretary shall consider evidence 

provided for the record by any party to a licensing proceeding, or otherwise available to the 

Secretary, including any evidence provided by 

the Commission, on the implementation costs or 

operational impacts for electricity production of 

a proposed alternative. 

(4) The Secretary concerned shall submit into 

the public record of the Commission proceeding 

with any prescription under section 811 of this 

title or alternative prescription it accepts under 

this section, a written statement explaining the 

basis for such prescription, and reason for not 

accepting any alternative prescription under 

this section. The written statement must demonstrate that the Secretary gave equal consideration to the effects of the prescription adopted 

and alternatives not accepted on energy supply, 

distribution, cost, and use; flood control; navigation; water supply; and air quality (in addition to the preservation of other aspects of environmental quality); based on such information 

as may be available to the Secretary, including 

information voluntarily provided in a timely 

manner by the applicant and others. The Secretary shall also submit, together with the 

aforementioned written statement, all studies, 

data, and other factual information available to 

the Secretary and relevant to the Secretary’s 

decision. 

(5) If the Commission finds that the Secretary’s final prescription would be inconsistent

with the purposes of this subchapter, or other 

applicable law, the Commission may refer the 

dispute to the Commission’s Dispute Resolution 

Service. The Dispute Resolution Service shall 

consult with the Secretary and the Commission 

and issue a non-binding advisory within 90 days. 

The Secretary may accept the Dispute Resolution Service advisory unless the Secretary finds 

that the recommendation will not adequately 

protect the fish resources. The Secretary shall 

submit the advisory and the Secretary’s final 

written determination into the record of the 

Commission’s proceeding. 

(June 10, 1920, ch. 285, pt. I, §33, as added Pub. L. 

109–58, title II, §241(c), Aug. 8, 2005, 119 Stat. 675.) 

SUBCHAPTER II—REGULATION OF ELECTRIC UTILITY COMPANIES ENGAGED IN 

INTERSTATE COMMERCE

§ 824. Declaration of policy; application of subchapter 

(a) Federal regulation of transmission and sale 

of electric energy 

It is declared that the business of transmitting 

and selling electric energy for ultimate distribution to the public is affected with a public interest, and that Federal regulation of matters relating to generation to the extent provided in 

this subchapter and subchapter III of this chapter and of that part of such business which consists of the transmission of electric energy in 

interstate commerce and the sale of such energy 

at wholesale in interstate commerce is necessary in the public interest, such Federal regulation, however, to extend only to those matters 

which are not subject to regulation by the 

States. 

(b) Use or sale of electric energy in interstate 

commerce 

(1) The provisions of this subchapter shall 

apply to the transmission of electric energy in 

interstate commerce and to the sale of electric 

energy at wholesale in interstate commerce, but 

except as provided in paragraph (2) shall not 

apply to any other sale of electric energy or deprive a State or State commission of its lawful 

authority now exercised over the exportation of 

hydroelectric energy which is transmitted 

across a State line. The Commission shall have 

jurisdiction over all facilities for such transmission or sale of electric energy, but shall not 

have jurisdiction, except as specifically provided 

in this subchapter and subchapter III of this 

chapter, over facilities used for the generation 

of electric energy or over facilities used in local 

distribution or only for the transmission of electric energy in intrastate commerce, or over facilities for the transmission of electric energy 

consumed wholly by the transmitter. 

(2) Notwithstanding subsection (f) of this section, the provisions of sections 824b(a)(2), 824e(e), 

824i, 824j, 824j–1, 824k, 824o, 824p, 824q, 824r, 824s, 

824t, 824u, and 824v of this title shall apply to 

the entities described in such provisions, and 

such entities shall be subject to the jurisdiction 

of the Commission for purposes of carrying out 

such provisions and for purposes of applying the 

enforcement authorities of this chapter with reA-4

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1So in original. Section 824e of this title does not contain a 

subsec. (f). 

spect to such provisions. Compliance with any 

order or rule of the Commission under the provisions of section 824b(a)(2), 824e(e), 824i, 824j, 

824j–1, 824k, 824o, 824p, 824q, 824r, 824s, 824t, 824u, 

or 824v of this title, shall not make an electric 

utility or other entity subject to the jurisdiction of the Commission for any purposes other 

than the purposes specified in the preceding sentence. 

(c) Electric energy in interstate commerce 

For the purpose of this subchapter, electric 

energy shall be held to be transmitted in interstate commerce if transmitted from a State and 

consumed at any point outside thereof; but only 

insofar as such transmission takes place within 

the United States. 

(d) ‘‘Sale of electric energy at wholesale’’ defined 

The term ‘‘sale of electric energy at wholesale’’ when used in this subchapter, means a sale 

of electric energy to any person for resale. 

(e) ‘‘Public utility’’ defined 

The term ‘‘public utility’’ when used in this 

subchapter and subchapter III of this chapter 

means any person who owns or operates facilities subject to the jurisdiction of the Commission under this subchapter (other than facilities 

subject to such jurisdiction solely by reason of 

section 824e(e), 824e(f),1 824i, 824j, 824j–1, 824k, 

824o, 824p, 824q, 824r, 824s, 824t, 824u, or 824v of 

this title). 

(f) United States, State, political subdivision of a 

State, or agency or instrumentality thereof 

exempt 

No provision in this subchapter shall apply to, 

or be deemed to include, the United States, a 

State or any political subdivision of a State, an 

electric cooperative that receives financing 

under the Rural Electrification Act of 1936 (7 

U.S.C. 901 et seq.) or that sells less than 4,000,000 

megawatt hours of electricity per year, or any 

agency, authority, or instrumentality of any 

one or more of the foregoing, or any corporation 

which is wholly owned, directly or indirectly, by 

any one or more of the foregoing, or any officer, 

agent, or employee of any of the foregoing acting as such in the course of his official duty, unless such provision makes specific reference 

thereto. 

(g) Books and records 

(1) Upon written order of a State commission, 

a State commission may examine the books, accounts, memoranda, contracts, and records of— 

(A) an electric utility company subject to its 

regulatory authority under State law, 

(B) any exempt wholesale generator selling 

energy at wholesale to such electric utility, 

and 

(C) any electric utility company, or holding 

company thereof, which is an associate company or affiliate of an exempt wholesale generator which sells electric energy to an electric 

utility company referred to in subparagraph 

(A), 

wherever located, if such examination is required for the effective discharge of the State 

commission’s regulatory responsibilities affecting the provision of electric service. 

(2) Where a State commission issues an order 

pursuant to paragraph (1), the State commission 

shall not publicly disclose trade secrets or sensitive commercial information. 

(3) Any United States district court located in 

the State in which the State commission referred to in paragraph (1) is located shall have 

jurisdiction to enforce compliance with this subsection. 

(4) Nothing in this section shall— 

(A) preempt applicable State law concerning 

the provision of records and other information; or 

(B) in any way limit rights to obtain records 

and other information under Federal law, contracts, or otherwise. 

(5) As used in this subsection the terms ‘‘affiliate’’, ‘‘associate company’’, ‘‘electric utility 

company’’, ‘‘holding company’’, ‘‘subsidiary 

company’’, and ‘‘exempt wholesale generator’’ 

shall have the same meaning as when used in 

the Public Utility Holding Company Act of 2005 

[42 U.S.C. 16451 et seq.]. 

(June 10, 1920, ch. 285, pt. II, §201, as added Aug. 

26, 1935, ch. 687, title II, §213, 49 Stat. 847; amended Pub. L. 95–617, title II, §204(b), Nov. 9, 1978, 92 

Stat. 3140; Pub. L. 102–486, title VII, §714, Oct. 24, 

1992, 106 Stat. 2911; Pub. L. 109–58, title XII, 

§§1277(b)(1), 1291(c), 1295(a), Aug. 8, 2005, 119 Stat. 

978, 985.) 

REFERENCES IN TEXT

The Rural Electrification Act of 1936, referred to in 

subsec. (f), is act May 20, 1936, ch. 432, 49 Stat. 1363, as 

amended, which is classified generally to chapter 31 

(§901 et seq.) of Title 7, Agriculture. For complete classification of this Act to the Code, see section 901 of 

Title 7 and Tables. 

The Public Utility Holding Company Act of 2005, referred to in subsec. (g)(5), is subtitle F of title XII of 

Pub. L. 109–58, Aug. 8, 2005, 119 Stat. 972, which is classified principally to part D (§16451 et seq.) of subchapter 

XII of chapter 149 of Title 42, The Public Health and 

Welfare. For complete classification of this Act to the 

Code, see Short Title note set out under section 15801 

of Title 42 and Tables. 

AMENDMENTS

2005—Subsec. (b)(2). Pub. L. 109–58, §1295(a)(1), substituted ‘‘Notwithstanding subsection (f) of this section, the provisions of sections 824b(a)(2), 824e(e), 824i, 

824j, 824j–1, 824k, 824o, 824p, 824q, 824r, 824s, 824t, 824u, 

and 824v of this title’’ for ‘‘The provisions of sections 

824i, 824j, and 824k of this title’’ and ‘‘Compliance with 

any order or rule of the Commission under the provisions of section 824b(a)(2), 824e(e), 824i, 824j, 824j–1, 824k, 

824o, 824p, 824q, 824r, 824s, 824t, 824u, or 824v of this 

title’’ for ‘‘Compliance with any order of the Commission under the provisions of section 824i or 824j of this 

title’’. 

Subsec. (e). Pub. L. 109–58, §1295(a)(2), substituted 

‘‘section 824e(e), 824e(f), 824i, 824j, 824j–1, 824k, 824o, 824p, 

824q, 824r, 824s, 824t, 824u, or 824v of this title’’ for ‘‘section 824i, 824j, or 824k of this title’’. 

Subsec. (f). Pub. L. 109–58, §1291(c), which directed 

amendment of subsec. (f) by substituting ‘‘political 

subdivision of a State, an electric cooperative that receives financing under the Rural Electrification Act of 

1936 (7 U.S.C. 901 et seq.) or that sells less than 4,000,000 

megawatt hours of electricity per year,’’ for ‘‘political 

subdivision of a state,’’, was executed by making the 

substitution for ‘‘political subdivision of a State,’’ to 

reflect the probable intent of Congress. 

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for such purpose in such order, or otherwise in 

contravention of such order. 

(d) Authorization of capitalization not to exceed 

amount paid 

The Commission shall not authorize the capitalization of the right to be a corporation or of 

any franchise, permit, or contract for consolidation, merger, or lease in excess of the amount 

(exclusive of any tax or annual charge) actually 

paid as the consideration for such right, franchise, permit, or contract. 

(e) Notes or drafts maturing less than one year 

after issuance 

Subsection (a) of this section shall not apply 

to the issue or renewal of, or assumption of liability on, a note or draft maturing not more 

than one year after the date of such issue, renewal, or assumption of liability, and aggregating (together with all other then outstanding 

notes and drafts of a maturity of one year or 

less on which such public utility is primarily or 

secondarily liable) not more than 5 per centum 

of the par value of the other securities of the 

public utility then outstanding. In the case of 

securities having no par value, the par value for 

the purpose of this subsection shall be the fair 

market value as of the date of issue. Within ten 

days after any such issue, renewal, or assumption of liability, the public utility shall file with 

the Commission a certificate of notification, in 

such form as may be prescribed by the Commission, setting forth such matters as the Commission shall by regulation require. 

(f) Public utility securities regulated by State not 

affected 

The provisions of this section shall not extend 

to a public utility organized and operating in a 

State under the laws of which its security issues 

are regulated by a State commission. 

(g) Guarantee or obligation on part of United 

States 

Nothing in this section shall be construed to 

imply any guarantee or obligation on the part of 

the United States in respect of any securities to 

which the provisions of this section relate. 

(h) Filing duplicate reports with the Securities 

and Exchange Commission 

Any public utility whose security issues are 

approved by the Commission under this section 

may file with the Securities and Exchange Commission duplicate copies of reports filed with the 

Federal Power Commission in lieu of the reports, information, and documents required 

under sections 77g, 78l, and 78m of title 15. 

(June 10, 1920, ch. 285, pt. II, §204, as added Aug. 

26, 1935, ch. 687, title II, §213, 49 Stat. 850.) 

TRANSFER OF FUNCTIONS

Executive and administrative functions of Securities 

and Exchange Commission, with certain exceptions, 

transferred to Chairman of such Commission, with authority vested in him to authorize their performance 

by any officer, employee, or administrative unit under 

his jurisdiction, by Reorg. Plan No. 10 of 1950, §§1, 2, eff. 

May 24, 1950, 15 F.R. 3175, 64 Stat. 1265, set out in the 

Appendix to Title 5, Government Organization and Employees. 

§ 824d. Rates and charges; schedules; suspension 

of new rates; automatic adjustment clauses 

(a) Just and reasonable rates 

All rates and charges made, demanded, or received by any public utility for or in connection 

with the transmission or sale of electric energy 

subject to the jurisdiction of the Commission, 

and all rules and regulations affecting or pertaining to such rates or charges shall be just and 

reasonable, and any such rate or charge that is 

not just and reasonable is hereby declared to be 

unlawful. 

(b) Preference or advantage unlawful 

No public utility shall, with respect to any 

transmission or sale subject to the jurisdiction 

of the Commission, (1) make or grant any undue 

preference or advantage to any person or subject 

any person to any undue prejudice or disadvantage, or (2) maintain any unreasonable difference in rates, charges, service, facilities, or in 

any other respect, either as between localities 

or as between classes of service.

(c) Schedules 

Under such rules and regulations as the Commission may prescribe, every public utility shall 

file with the Commission, within such time and 

in such form as the Commission may designate, 

and shall keep open in convenient form and 

place for public inspection schedules showing all 

rates and charges for any transmission or sale 

subject to the jurisdiction of the Commission, 

and the classifications, practices, and regulations affecting such rates and charges, together 

with all contracts which in any manner affect or 

relate to such rates, charges, classifications, and 

services. 

(d) Notice required for rate changes 

Unless the Commission otherwise orders, no 

change shall be made by any public utility in 

any such rate, charge, classification, or service, 

or in any rule, regulation, or contract relating 

thereto, except after sixty days’ notice to the 

Commission and to the public. Such notice shall 

be given by filing with the Commission and 

keeping open for public inspection new schedules stating plainly the change or changes to be 

made in the schedule or schedules then in force 

and the time when the change or changes will go 

into effect. The Commission, for good cause 

shown, may allow changes to take effect without requiring the sixty days’ notice herein provided for by an order specifying the changes so 

to be made and the time when they shall take 

effect and the manner in which they shall be 

filed and published. 

(e) Suspension of new rates; hearings; five-month 

period 

Whenever any such new schedule is filed the 

Commission shall have authority, either upon 

complaint or upon its own initiative without 

complaint, at once, and, if it so orders, without 

answer or formal pleading by the public utility, 

but upon reasonable notice, to enter upon a 

hearing concerning the lawfulness of such rate, 

charge, classification, or service; and, pending 

such hearing and the decision thereon, the Commission, upon filing with such schedules and deA-6

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(B) cease any practice in connection with

the clause,

if such clause or practice does not result in the

economical purchase and use of fuel, electric energy, or other items, the cost of which is included in any rate schedule under an automatic

adjustment clause.

(4) As used in this subsection, the term ‘‘automatic adjustment clause’’ means a provision of

a rate schedule which provides for increases or

decreases (or both), without prior hearing, in

rates reflecting increases or decreases (or both)

in costs incurred by an electric utility. Such

term does not include any rate which takes effect subject to refund and subject to a later determination of the appropriate amount of such

rate. 

(June 10, 1920, ch. 285, pt. II, §205, as added Aug.

26, 1935, ch. 687, title II, §213, 49 Stat. 851; amended Pub. L. 95–617, title II, §§207(a), 208, Nov. 9,

1978, 92 Stat. 3142.)

AMENDMENTS

1978—Subsec. (d). Pub. L. 95–617, §207(a), substituted

‘‘sixty’’ for ‘‘thirty’’ in two places.

Subsec. (f). Pub. L. 95–617, §208, added subsec. (f).

STUDY OF ELECTRIC RATE INCREASES UNDER FEDERAL

POWER ACT

Section 207(b) of Pub. L. 95–617 directed chairman of

Federal Energy Regulatory Commission, in consultation with Secretary, to conduct a study of legal requirements and administrative procedures involved in

consideration and resolution of proposed wholesale

electric rate increases under Federal Power Act, section 791a et seq. of this title, for purposes of providing

for expeditious handling of hearings consistent with

due process, preventing imposition of successive rate

increases before they have been determined by Commission to be just and reasonable and otherwise lawful,

and improving procedures designed to prohibit anticompetitive or unreasonable differences in wholesale

and retail rates, or both, and that chairman report to

Congress within nine months from Nov. 9, 1978, on results of study, on administrative actions taken as a result of this study, and on any recommendations for

changes in existing law that will aid purposes of this

section. 

§ 824e. Power of Commission to fix rates and

charges; determination of cost of production

or transmission

(a) Unjust or preferential rates, etc.; statement of

reasons for changes; hearing; specification of

issues 

Whenever the Commission, after a hearing

held upon its own motion or upon complaint,

shall find that any rate, charge, or classification, demanded, observed, charged, or collected

by any public utility for any transmission or

sale subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or

contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission

shall determine the just and reasonable rate,

charge, classification, rule, regulation, practice,

or contract to be thereafter observed and in

force, and shall fix the same by order. Any complaint or motion of the Commission to initiate

a proceeding under this section shall state the

change or changes to be made in the rate,

charge, classification, rule, regulation, practice,

or contract then in force, and the reasons for

any proposed change or changes therein. If, after

review of any motion or complaint and answer,

the Commission shall decide to hold a hearing,

it shall fix by order the time and place of such

hearing and shall specify the issues to be adjudicated.

(b) Refund effective date; preferential proceedings; statement of reasons for delay; burden

of proof; scope of refund order; refund orders in cases of dilatory behavior; interest

Whenever the Commission institutes a proceeding under this section, the Commission

shall establish a refund effective date. In the

case of a proceeding instituted on complaint,

the refund effective date shall not be earlier

than the date of the filing of such complaint nor

later than 5 months after the filing of such complaint. In the case of a proceeding instituted by

the Commission on its own motion, the refund

effective date shall not be earlier than the date

of the publication by the Commission of notice

of its intention to initiate such proceeding nor

later than 5 months after the publication date.

Upon institution of a proceeding under this section, the Commission shall give to the decision

of such proceeding the same preference as provided under section 824d of this title and otherwise act as speedily as possible. If no final decision is rendered by the conclusion of the 180-day

period commencing upon initiation of a proceeding pursuant to this section, the Commission

shall state the reasons why it has failed to do so

and shall state its best estimate as to when it

reasonably expects to make such decision. In

any proceeding under this section, the burden of

proof to show that any rate, charge, classification, rule, regulation, practice, or contract is

unjust, unreasonable, unduly discriminatory, or

preferential shall be upon the Commission or

the complainant. At the conclusion of any proceeding under this section, the Commission may

order refunds of any amounts paid, for the period subsequent to the refund effective date

through a date fifteen months after such refund

effective date, in excess of those which would

have been paid under the just and reasonable

rate, charge, classification, rule, regulation,

practice, or contract which the Commission orders to be thereafter observed and in force: Provided, That if the proceeding is not concluded

within fifteen months after the refund effective

date and if the Commission determines at the

conclusion of the proceeding that the proceeding

was not resolved within the fifteen-month period primarily because of dilatory behavior by

the public utility, the Commission may order refunds of any or all amounts paid for the period

subsequent to the refund effective date and prior

to the conclusion of the proceeding. The refunds

shall be made, with interest, to those persons

who have paid those rates or charges which are

the subject of the proceeding.

(c) Refund considerations; shifting costs; reduction in revenues; ‘‘electric utility companies’’

and ‘‘registered holding company’’ defined

Notwithstanding subsection (b) of this section,

in a proceeding commenced under this section

involving two or more electric utility companies

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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 106 of 115
§ 825l TITLE 16—CONSERVATION Page 1354 

Stat. 417 [31 U.S.C. 686, 686b])’’ on authority of Pub. L. 

97–258, §4(b), Sept. 13, 1982, 96 Stat. 1067, the first section of which enacted Title 31, Money and Finance. 

§ 825l. Review of orders 

(a) Application for rehearing; time periods; modification of order 

Any person, electric utility, State, municipality, or State commission aggrieved by an order 

issued by the Commission in a proceeding under 

this chapter to which such person, electric utility, State, municipality, or State commission is 

a party may apply for a rehearing within thirty 

days after the issuance of such order. The application for rehearing shall set forth specifically 

the ground or grounds upon which such application is based. Upon such application the Commission shall have power to grant or deny rehearing or to abrogate or modify its order without further hearing. Unless the Commission acts 

upon the application for rehearing within thirty 

days after it is filed, such application may be 

deemed to have been denied. No proceeding to 

review any order of the Commission shall be 

brought by any entity unless such entity shall 

have made application to the Commission for a 

rehearing thereon. Until the record in a proceeding shall have been filed in a court of appeals, as 

provided in subsection (b) of this section, the 

Commission may at any time, upon reasonable 

notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any 

finding or order made or issued by it under the 

provisions of this chapter. 

(b) Judicial review 

Any party to a proceeding under this chapter 

aggrieved by an order issued by the Commission 

in such proceeding may obtain a review of such 

order in the United States court of appeals for 

any circuit wherein the licensee or public utility 

to which the order relates is located or has its 

principal place of business, or in the United 

States Court of Appeals for the District of Columbia, by filing in such court, within sixty 

days after the order of the Commission upon the 

application for rehearing, a written petition 

praying that the order of the Commission be 

modified or set aside in whole or in part. A copy 

of such petition shall forthwith be transmitted 

by the clerk of the court to any member of the 

Commission and thereupon the Commission 

shall file with the court the record upon which 

the order complained of was entered, as provided 

in section 2112 of title 28. Upon the filing of such 

petition such court shall have jurisdiction, 

which upon the filing of the record with it shall 

be exclusive, to affirm, modify, or set aside such 

order in whole or in part. No objection to the 

order of the Commission shall be considered by 

the court unless such objection shall have been 

urged before the Commission in the application 

for rehearing unless there is reasonable ground 

for failure so to do. The finding of the Commission as to the facts, if supported by substantial 

evidence, shall be conclusive. If any party shall 

apply to the court for leave to adduce additional 

evidence, and shall show to the satisfaction of 

the court that such additional evidence is material and that there were reasonable grounds for 

failure to adduce such evidence in the proceedings before the Commission, the court may 

order such additional evidence to be taken before the Commission and to be adduced upon the 

hearing in such manner and upon such terms 

and conditions as to the court may seem proper. 

The Commission may modify its findings as to 

the facts by reason of the additional evidence so 

taken, and it shall file with the court such 

modified or new findings which, if supported by 

substantial evidence, shall be conclusive, and its 

recommendation, if any, for the modification or 

setting aside of the original order. The judgment 

and decree of the court, affirming, modifying, or 

setting aside, in whole or in part, any such order 

of the Commission, shall be final, subject to review by the Supreme Court of the United States 

upon certiorari or certification as provided in 

section 1254 of title 28. 

(c) Stay of Commission’s order 

The filing of an application for rehearing 

under subsection (a) of this section shall not, 

unless specifically ordered by the Commission, 

operate as a stay of the Commission’s order. The 

commencement of proceedings under subsection 

(b) of this section shall not, unless specifically 

ordered by the court, operate as a stay of the 

Commission’s order. 

(June 10, 1920, ch. 285, pt. III, §313, as added Aug. 

26, 1935, ch. 687, title II, §213, 49 Stat. 860; amended June 25, 1948, ch. 646, §32(a), 62 Stat. 991; May 

24, 1949, ch. 139, §127, 63 Stat. 107; Pub. L. 85–791, 

§16, Aug. 28, 1958, 72 Stat. 947; Pub. L. 109–58, 

title XII, §1284(c), Aug. 8, 2005, 119 Stat. 980.) 

CODIFICATION

In subsec. (b), ‘‘section 1254 of title 28’’ substituted

for ‘‘sections 239 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 346 and 347)’’ on authority of 

act June 25, 1948, ch. 646, 62 Stat. 869, the first section 

of which enacted Title 28, Judiciary and Judicial Procedure. 

AMENDMENTS

2005—Subsec. (a). Pub. L. 109–58 inserted ‘‘electric 

utility,’’ after ‘‘Any person,’’ and ‘‘to which such person,’’ and substituted ‘‘brought by any entity unless 

such entity’’ for ‘‘brought by any person unless such 

person’’. 

1958—Subsec. (a). Pub. L. 85–791, §16(a), inserted sentence to provide that Commission may modify or set 

aside findings or orders until record has been filed in 

court of appeals. 

Subsec. (b). Pub. L. 85–791, §16(b), in second sentence,

substituted ‘‘transmitted by the clerk of the court to’’ 

for ‘‘served upon’’, substituted ‘‘file with the court’’ for 

‘‘certify and file with the court a transcript of’’, and inserted ‘‘as provided in section 2112 of title 28’’, and in 

third sentence, substituted ‘‘jurisdiction, which upon 

the filing of the record with it shall be exclusive’’ for 

‘‘exclusive jurisdiction’’. 

CHANGE OF NAME

Act June 25, 1948, eff. Sept. 1, 1948, as amended by act 

May 24, 1949, substituted ‘‘court of appeals’’ for ‘‘circuit 

court of appeals’’. 

§ 825m. Enforcement provisions 

(a) Enjoining and restraining violations

Whenever it shall appear to the Commission 

that any person is engaged or about to engage in 

any acts or practices which constitute or will 

constitute a violation of the provisions of this

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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 107 of 115
Page 349 TITLE 28—JUDICIARY AND JUDICIAL PROCEDURE § 1346 

§ 1344. Election disputes

The district courts shall have original jurisdiction of any civil action to recover possession

of any office, except that of elector of President

or Vice President, United States Senator, Representative in or delegate to Congress, or member of a state legislature, authorized by law to

be commenced, where in it appears that the sole

question touching the title to office arises out of

denial of the right to vote, to any citizen offering to vote, on account of race, color or previous

condition of servitude.

The jurisdiction under this section shall extend only so far as to determine the rights of the

parties to office by reason of the denial of the

right, guaranteed by the Constitution of the

United States and secured by any law, to enforce

the right of citizens of the United States to vote

in all the States.

(June 25, 1948, ch. 646, 62 Stat. 932.)

HISTORICAL AND REVISION NOTES

Based on title 28, U.S.C., 1940 ed., §41(15) (Mar. 3, 1911,

ch. 231, §24, par. 15, 36 Stat. 1092).

Words ‘‘civil action’’ were substituted for ‘‘suits,’’ in

view of Rule 2 of the Federal Rules of Civil Procedure.

Words ‘‘United States Senator’’ were added, as no

reason appears for including Representatives and excluding Senators. Moreover, the Seventeenth amendment, providing for the popular election of Senators,

was adopted after the passage of the 1911 law on which

this section is based.

Changes were made in phraseology.

§ 1345. United States as plaintiff

Except as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States, or by any

agency or officer thereof expressly authorized to

sue by Act of Congress.

(June 25, 1948, ch. 646, 62 Stat. 933.)

HISTORICAL AND REVISION NOTES

Based on title 28, U.S.C., 1940 ed., §41(1) (Mar. 3, 1911,

ch. 231, §24, par. 1, 36 Stat. 1091; May 14, 1934, ch. 283, §1,

48 Stat. 775; Aug. 21, 1937, ch. 726, §1, 50 Stat. 738; Apr.

20, 1940, ch. 117, 54 Stat. 143).

Other provisions of section 41(1) of title 28, U.S.C.,

1940 ed., are incorporated in sections 1331, 1332, 1341,

1342, 1354, and 1359 of this title.

Words ‘‘civil actions, suits or proceedings’’ were substituted for ‘‘suits of a civil nature, at common law or

in equity’’ in view of Rules 2 and 81(a)(7) of the Federal

Rules of Civil Procedure.

Word ‘‘agency’’ was inserted in order that this section shall apply to actions by agencies of the Government and to conform with special acts authorizing such

actions. (See definitive section 451 of this title.)

The phrase ‘‘Except as otherwise provided by Act of

Congress,’’ at the beginning of the section was inserted

to make clear that jurisdiction exists generally in district courts in the absence of special provisions conferring it elsewhere.

Changes were made in phraseology.

§ 1346. United States as defendant

(a) The district courts shall have original jurisdiction, concurrent with the United States

Court of Federal Claims, of:

(1) Any civil action against the United

States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty

claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected

under the internal-revenue laws;

(2) Any other civil action or claim against

the United States, not exceeding $10,000 in

amount, founded either upon the Constitution,

or any Act of Congress, or any regulation of an

executive department, or upon any express or

implied contract with the United States, or

for liquidated or unliquidated damages in

cases not sounding in tort, except that the district courts shall not have jurisdiction of any

civil action or claim against the United States

founded upon any express or implied contract

with the United States or for liquidated or unliquidated damages in cases not sounding in

tort which are subject to sections 7104(b)(1)

and 7107(a)(1) of title 41. For the purpose of

this paragraph, an express or implied contract

with the Army and Air Force Exchange Service, Navy Exchanges, Marine Corps Exchanges,

Coast Guard Exchanges, or Exchange Councils

of the National Aeronautics and Space Administration shall be considered an express or implied contract with the United States.

(b)(1) Subject to the provisions of chapter 171

of this title, the district courts, together with

the United States District Court for the District

of the Canal Zone and the District Court of the

Virgin Islands, shall have exclusive jurisdiction

of civil actions on claims against the United

States, for money damages, accruing on and

after January 1, 1945, for injury or loss of property, or personal injury or death caused by the

negligent or wrongful act or omission of any employee of the Government while acting within

the scope of his office or employment, under circumstances where the United States, if a private

person, would be liable to the claimant in accordance with the law of the place where the act

or omission occurred.

(2) No person convicted of a felony who is incarcerated while awaiting sentencing or while

serving a sentence may bring a civil action

against the United States or an agency, officer,

or employee of the Government, for mental or

emotional injury suffered while in custody without a prior showing of physical injury.

(c) The jurisdiction conferred by this section

includes jurisdiction of any set-off, counterclaim, or other claim or demand whatever on

the part of the United States against any plaintiff commencing an action under this section.

(d) The district courts shall not have jurisdiction under this section of any civil action or

claim for a pension.

(e) The district courts shall have original jurisdiction of any civil action against the United

States provided in section 6226, 6228(a), 7426, or

7428 (in the case of the United States district

court for the District of Columbia) or section

7429 of the Internal Revenue Code of 1986.

(f) The district courts shall have exclusive

original jurisdiction of civil actions under section 2409a to quiet title to an estate or interest

in real property in which an interest is claimed

by the United States.

(g) Subject to the provisions of chapter 179,

the district courts of the United States shall

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290 

§ 35.27 18 CFR Ch. I (4–1–12 Edition) 

(d)(1) of this section must demonstrate 

that: 

(i) It incurred costs to provide service 

to a retail customer that obtains retail 

wheeling based on a reasonable expectation that the utility would continue 

to serve the customer; and 

(ii) The stranded costs are not more 

than the customer would have contributed to the utility had the customer 

remained a retail customer of the utility. 

[Order 888–A, 62 FR 12460, Mar. 14, 1997] 

§ 35.27 Authority of State commissions. 

Nothing in this part— 

(a) Shall be construed as preempting 

or affecting any jurisdiction a State 

commission or other State authority 

may have under applicable State and 

Federal law, or 

(b) Limits the authority of a State 

commission in accordance with State 

and Federal law to establish 

(1) Competitive procedures for the acquisition of electric energy, including 

demand-side management, purchased 

at wholesale, or 

(2) Non-discriminatory fees for the

distribution of such electric energy to 

retail consumers for purposes established in accordance with State law. 

[Order 697, 72 FR 40038, July 20, 2007]

§ 35.28 Non-discriminatory open access 

transmission tariff. 

(a) Applicability. This section applies 

to any public utility that owns, controls or operates facilities used for the 

transmission of electric energy in 

interstate commerce and to any nonpublic utility that seeks voluntary 

compliance with jurisdictional transmission tariff reciprocity conditions. 

(b) Definitions—(1) Requirements service agreement means a contract or rate 

schedule under which a public utility 

provides any portion of a customer’s 

bundled wholesale power requirements. 

(2) Economy energy coordination agreement means a contract, or service 

schedule thereunder, that provides for 

trading of electric energy on an ‘‘if, as 

and when available’’ basis, but does not 

require either the seller or the buyer to 

engage in a particular transaction. 

(3) Non-economy energy coordination 

agreement means any non-requirements

service agreement, except an economy 

energy coordination agreement as defined in paragraph (b)(2) of this section.

(4) Demand response means a reduction in the consumption of electric energy by customers from their expected 

consumption in response to an increase 

in the price of electric energy or to incentive payments designed to induce 

lower consumption of electric energy. 

(5) Demand response resource means a 

resource capable of providing demand 

response. 

(6) An operating reserve shortage 

means a period when the amount of 

available supply falls short of demand 

plus the operating reserve requirement. 

(7) Market Monitoring Unit means the 

person or entity responsible for carrying out the market monitoring functions that the Commission has ordered 

Commission-approved independent system operators and regional transmission organizations to perform. 

(8) Market Violation means a tariff 

violation, violation of a Commissionapproved order, rule or regulation, 

market manipulation, or inappropriate 

dispatch that creates substantial concerns regarding unnecessary market 

inefficiencies. 

(c) Non-discriminatory open access 

transmission tariffs. 

(1) Every public utility that owns, 

controls, or operates facilities used for 

the transmission of electric energy in 

interstate commerce must have on file 

with the Commission a tariff of general 

applicability for transmission services, 

including ancillary services, over such 

facilities. Such tariff must be the open 

access pro forma tariff contained in 

Order No. 888, FERC Stats. & Regs. ¶ 

31,036 (Final Rule on Open Access and 

Stranded Costs), as revised by the open 

access pro forma tariff contained in 

Order No. 890, FERC Stats. & Regs. ¶ 

31,241 (Final Rule on Open Access Reforms) and further revised in Order No. 

1000, FERC Stats. & Regs. ¶ 31,323 

(Final Rule on Transmission Planning 

and Cost Allocation by Transmission 

Owning and Operating Public Utilities), or such other open access tariff 

as may be approved by the Commission 

consistent with Order No. 888, FERC 

Stats. & Regs ¶ 31,306, Order No. 890, 

FERC Stats. & Regs. ¶ 32,241, and Order 

No. 1000, FERC Stats. & Regs. ¶ 31,323. 


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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 109 of 115
294 

§ 35.28 18 CFR Ch. I (4–1–12 Edition) 

have to comply with the requirements 

of this paragraph. 

(4) A public utility subject to the requirements of this paragraph pertaining to the Final Rule on Small 

Generator Interconnection may file a 

request for waiver of all or part of the 

requirements of this paragraph, for 

good cause shown. An application for 

waiver must be filed either: 

(i) No later than August 12, 2005, or 

(ii) No later than 60 days prior to the 

time the public utility would otherwise 

have to comply with the requirements 

of this paragraph. 

(g) Tariffs and operations of Commission-approved independent system operators and regional transmission organizations. 

(1) Demand response and pricing. 

(i) Ancillary services provided by demand response resources. 

(A) Every Commission-approved independent system operator or regional 

transmission organization that operates organized markets based on competitive bidding for energy imbalance, 

spinning re serves ,supplemental reserves, reactive power and voltage control, or regulation and frequency response ancillary services (or its functional equivalent in the Commissionapproved independent system operator’s or regional transmission organization’s tariff) must accept bids from 

demand response resources in these 

markets for that product on a basis 

comparable to any other resources, if 

the demand response resource meets 

the necessary technical requirements 

under the tariff, and submits a bid 

under the Commission-approved independent system operator’s or regional 

transmission organization’s bidding 

rules at or below the market-clearing 

price, unless not permitted by the laws 

or regulations of the relevant electric 

retail regulatory authority. 

(B) Each Commission-approved independent system operator or regional 

transmission organization must allow 

providers of a demand response resource to specify the following in their 

bids: 

(1) A maximum duration in hours 

that the demand response resource 

may be dispatched; 

(2) A maximum number of times that 

the demand response resource may be 

dispatched during a day; and 

(3) A maximum amount of electric 

energy reduction that the demand response resource may be required to 

provide either daily or weekly. 

(ii) Removal of deviation charges. A 

Commission-approved independent system operator or regional transmission 

organization with a tariff that contains 

a day-ahead and a real-time market 

may not assess charge to a purchaser 

of electric energy in its day-ahead market for purchasing less power in the 

real-time market during a real-time 

market period for which the Commission-approved independent system operator or regional transmission organization declares an operating reserve 

shortage or makes a generic request to 

reduce load to avoid an operating reserve shortage. 

(iii) Aggregation of retail customers.

Each Commission-approved independent system operator and regional 

transmission organization must accept 

bids from an aggregator of retail customers that aggregates the demand response of the customers of utilities 

that distributed more than 4 million 

megawatt-hours in the previous fiscal 

year, and the customers of utilities 

that distributed 4 million megawatthours or less in the previous fiscal 

year, where the relevant electric retail 

regulatory authority permits such customers’ demand response to be bid into 

organized markets by an aggregator of 

retail customers. An independent system operator or regional transmission 

organization must not accept bids from 

an aggregator of retail customers that 

aggregates the demand response of the 

customers of utilities that distributed 

more than 4 million megawatt-hours in 

the previous fiscal year, where the relevant electric retail regulatory authority prohibits such customers’ demand 

response to be bid into organized markets by an aggregator of retail customers, or the customers of utilities 

that distributed 4 million megawatthours or less in the previous fiscal 

year, unless the relevant electric retail 

regulatory authority permits such customers’ demand response to be bid into 

organized markets by an aggregator of 

retail customers. 


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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 110 of 115
295 

Federal Energy Regulatory Commission § 35.28 

(iv) Price formation during periods of 

operating reserve shortage. 

(A) Each Commission-approved independent system operator or regional 

transmission organization must modify 

its market rules to allow the marketclearing price during periods of operating reserve shortage to reach a level 

that rebalances supply and demand so 

as to maintain reliability while providing sufficient provisions for mitigating market power. 

(B) A Commission-approved independent system operator or regional 

transmission organization may phase

in this modification of its market

rules. 

(v) Demand response compensation in 

energy markets. Each Commission-approved independent system operator or 

regional transmission organization 

that has a tariff provision permitting 

demand response resources to participate as a resource in the energy market by reducing consumption of electric energy from their expected levels 

in response to price signals must: 

(A) Pay to those demand response resources the market price for energy for 

these reductions when these demand 

response resources have the capability 

to balance supply and demand and 

when payment of the market price for 

energy to these resources is cost-effective as determined by a net benefits 

test accepted by the Commission; 

(B) Allocate the costs associated with 

demand response compensation proportionally to all entities that purchase 

from the relevant energy market in the 

area(s) where the demand response reduces the market price for energy at 

the time when the demand response resource is committed or dispatched. 

(2) Long-term power contracting in organized markets. Each Commission-approved independent system operator or 

regional transmission organization 

must provide a portion of its Web site 

for market participants to post offers 

to buy or sell power on a long-term 

basis. 

(3) Market monitoring policies. 

(i) Each Commission-approved independent system operator or regional 

transmission organization must modify 

its tariff provisions governing its Market Monitoring Unit to reflect the directives provided in OrderNo. 719, including the following: 

(A) Each Commission-approved independent system operator or regional 

transmission organization must include in its tariff a provision to provide 

its Market Monitoring Unit access to 

Commission-approved independent system operator and regional transmission organization market data, resources and personnel to enable the 

MarketMonitoring Unit to carry out 

its functions. 

(B) The tariff provision must provide 

the Market Monitoring Unit complete 

access to the Commission-approved 

independent system operator’s and regional transmission organization’s 

databases of market information. 

(C) The tariff provision must provide 

that any data created by the Market 

Monitoring Unit, including, but not 

limited to, reconfiguring of the Commission-approved independent system 

operator’s and regional transmission 

organization’s data, will be kept within 

the exclusive control of the Market 

Monitoring Unit. 

(D) The Market Monitoring Unit 

must report to the Commission-approved independent system operator’s 

or regional transmission organization’s 

board of directors, with its management members removed, or to an independent committee of the Commissionapproved independent system operator’s or regional transmission organization’s board of directors. A Commission-approved independent system operator or regional transmission organization that has both an internal Market Monitoring Unit and an external 

Market Monitoring Unit may permit 

the internal Market Monitoring Unit 

to report to management and the external Market Monitoring Unit to report to the Commission-approved independent system operator’s or regional 

transmission organization’s board of 

directors with its management members removed, or to an independent 

committee of the Commission-approved independent system operator or 

regional transmission organization 

board of directors. If the internal market monitor is responsible for carrying 

out any or all of the core Market Monitoring Unit functions identified in 

paragraph (g)(3)(ii) of this section, the 


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USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 111 of 115
Electric Power Supply Ass’n, et al. v. FERC Docket No. RM10-17 

D.C. Cir. No. 11-1486, et al. 

CERTIFICATE OF SERVICE

 In accordance with Fed. R. App. P.25(d), and the Court’s Administrative Order Regarding Electronic Case Filing, I hereby certify that I have, 

this 28th day of August 2012, served the foregoing upon the counsel listed in 

the Service Preference Report via email through the Court’s CM/ECF 

system or via U.S. Mail, as indicated below: 

Cynthia S. Bogorad EMAIL 

William S. Huang 

Spiegel & McDiarmid LLP 

1333 New Hampshire Ave., NW 

Washington, DC 20036 

 

Kriss E. Brown EMAIL 

Pennsylvania Public Utility Commission 

400 North Street 

Harrisburg, PA 17120 

Adrienne E. Clair US MAIL 

Stinson Morrison Hecker LLP 

1775 Pennsylvania Ave., NW, Suite 800 

Washington, DC 20006 

Roger E. Collanton EMAIL 

Nancy J. Saracino 

Daniel Shonkwiler 

California Independent System Operator Corp. 

250 Outcropping Way 

Folsom, CA 95630 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 112 of 115
2

Ransom E. Davis US MAIL 

Public Service Commission of Maryland 

6 Saint Paul St. 

Baltimore, MD 21202-6806 

Paul M. Flynn EMAIL 

Barry S. Spector 

Wright & Talisman, PC 

1200 G St., NW, Suite 600 

Washington, DC 20005-1200 

Marvin T. Griff EMAIL 

Husch Blackwell LLP 

750 17th St., NW, Suite 900 

Washington, DC 20006 

Charlyn A. Hook US MAIL 

Frank R. Lindh 

California Public Utilities Commission 

505 Van Ness Ave. 

San Francisco, CA 94941 

Owen J. Kopon EMAIL 

Brickfield Burchette Ritts & Stone PC 

1025 Thomas Jefferson St., NW 

8th Floor, West Tower 

Washington, DC 20007-5201 

Jeffrey A. Lamken EMAIL 

Molo Lamken LLP 

The Watergate 

600 New Hampshire Ave., NW 

Washington, DC 20037 

Mary F. McKenzie EMAIL 

California Public Utilities Commission 

Suite 4300A 

505 Van Ness Avenue 

San Francisco, CA 94941 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 113 of 115
3

Stephanie Szu-Ping Lim EMAIL 

Ashley C. Parrish 

David G. Tewksbury 

King & Spalding, LLP 

1700 Pennsylvania Ave., NW 

Suite 200 

Washington, DC 20006-4706 

San Francisco, CA 94941 

Jonathan G. Mermin EMAIL 

Preti, Flaherty, Beliveau & Pachios LLP 

P.O. Box 9546 

Portland, ME 04112-9546 

Miles H. Mitchell EMAIL 

Public Service Commission of Maryland 

16th Floor 

6 Saint Paul St. 

Baltimore, MD 21202-6806 

Jodi L. Moskowitz EMAIL 

PSEG Services Corporation 

80 Park Plaza T5G 

Newark, NJ 07102-4194 

Gary J. Newell EMAIL 

Rebecca L. Sterzinar 

Thompson Coburn LLP 

1909 K St., NW, Suite 600 

Washington, DC 20006-1167 

David B. Raskin EMAIL 

Steptoe & Johnson LLP 

1330 Connecticut Ave., NW 

Washington, DC 20036-1795 

Harvey L. Reiter EMAIL 

Stinson Morrison Hecker LLP 

1775 Pennsylvania Ave., NW, Suite 800 

Washington, DC 20006 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 114 of 115
4

Sandra E. Rizzo EMAIL 

Bracewell & Giuliani LLP 

2000 K St., NW, Suite 500 

Washington, DC 20006-1872 

Joseph D. Shelby EMAIL 

Stevens & Lee PC 

51 South Duke Street 

Lancaster, PA 17602 

John L. Shepherd, Jr. EMAIL 

Skadden, Arps, Slate, Meagher & Flom LLP 

1440 New York Ave., NW 

Washington, DC 20005 

Donald J. Sipe US MAIL 

Preti, Flaherty, Beliveau & Pachios LLP 

45 Memorial Circle 

P.O. Box 1058 

Augusta, ME 04332-1058 

Robert A. Weishaar, Jr. EMAIL 

McNees, Wallace & Nurick 

777 N. Capitol St., NE, Suite 401 

Washington, DC 20002-0000 

/s/ Holly E. Cafer

 Holly E. Cafer 

 Attorney 

Federal Energy Regulatory 

 Commission 

Washington, DC 20426 

Tel: (202) 502-8485 

Fax: (202) 273-0901 

Email: holly.cafer@ferc.gov 

USCA Case #11-1486 Document #1391793 Filed: 08/28/2012 Page 115 of 115