Supreme Court Upholds Obama Administration Electricity Markets Rule

The U.S. Supreme Court on Monday upheld a major Obama administration electricity markets regulation aimed at encouraging efficiency in the market by having grid operators pay large users to reduce consumption at peak times.

The court ruled 6-2, with Justice Samuel Alito not taking part in the case, to reverse a May 2014 decision by the U.S. Court of Appeals for the District of Columbia Circuit to strike down the 2011 Federal Energy Regulatory Commission regulation.

FERC had asked the justices to overturn the lower-court ruling.

The case pitted the government's energy regulator against power companies opposed a regulation that threatened to cut into their profits.

Liberal Justice Elena Kagan, writing for the court, said that the agency had not exceeded its authority in issuing the rule. The court also upheld the formula the government adopted for compensating electricity users that receive the payments.

The regulation concerns what FERC calls "demand response," which is when, in an attempt to manage demand for electricity, regional electrical grid operators agree to pay big electricity users like factories, businesses, schools and hospitals to cut consumption at peak times. It is aimed at improving grid reliability, lowering costs and encouraging clean energy.

"Demand response" can reduce costs for consumers and lower the possibility of system failures and power blackouts.

The Electric Power Supply Association, PPL Corp and other trade groups that challenged the regulation would lose out under the regulation because it was likely to reduce demand for electricity generation. They contend FERC overstepped its authority.

FERC exercises authority over wholesale electricity markets, with retail markets traditionally overseen by states.

The Electric Power Supply Association's members include Exelon Corp and Dynegy Inc. Utility group Edison Electric Institute, which represents such companies as Entergy Corp and Southern Company, also challenged the rule.

The rule had remained in effect while the case made its way to the Supreme Court, which heard oral arguments on Oct. 14.