The U.S. Supreme Court has ruled against a group of power companies and several Republican attorneys general, including West Virginia Attorney General Patrick Morrisey, in a case that deals with the federal government's ability to regulate regional energy markets.
In a 6-2 ruling, the Supreme Court voted to overturn a lower court's opinion that challenged the Federal Energy Regulatory Commission's ability to regulate what is known in the power industry as demand response.
Demand response is a practice that allows large industrial or commercial electric customers - or larger groups of residential customers - to get paid for reducing the amount of power they use when electricity demand is at its highest.
The case itself - Electric Power Supply Association v. Federal Energy Regulatory Committee - deals with two federal orders that allowed demand response customers to compete in the regional electric markets with companies that own power plants.
Many power producers had argued that demand response reduced the amount of money that companies could make from coal plants, gas turbines, solar arrays and wind farms and would push some of those facilities out of business. Engineers, consumer advocates and grid operators that supported the orders said demand response saves customers money, is more effective than additional power generation and often out-competes the oldest and dirtiest plants.
Morrisey and the other attorneys general, led by Scott Pruitt of Oklahoma, argued on behalf of the power suppliers, as they evoked states' rights and disputed FERC's authority to regulate what they believed was a retail transaction.
But those arguments fell flat with the majority of the court, according to the opinion that was released Monday.
"Electricity has increasingly become a competitive interstate business, and FERC's role has evolved accordingly," Justice Elena Kagan wrote for the majority. "Electricity flows not through 'the local power networks of the past,' but instead through an interconnected 'grid' of near-nationwide scope."
As evidence of their opinion, Kagan also cited the Energy Policy Act of 2005 - signed into law by President George W. Bush - which specifically stated that FERC should encourage the adoption of demand response. She was joined by Chief Justice John Roberts and Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer and Sonia Sotomayor in the decision.
Justice Antonin Scalia and Justice Clarence Thomas dissented. They argued, like Morrisey, that FERC was limited by the law, which requires states to control retail transactions in the electric industry. Justice Samuel Alito was recused from he case.
"The majority is wrong even on its own terms," Scalia wrote, "for the rule at issue here does in fact regulate 'retail electricity sales.'"
Kagan and the other justices disputed that legal argument, however, and pointed out that states had the option of not participating.
According to the FERC rules, any state that wished to prohibit its businesses and residents from getting paid by the regional grid for reducing their energy needs could opt out.
"That feature of the rule removes any conceivable doubt as to its compliance with allocation of federal and state authority," Kagan wrote.
Many states, including West Virginia, have not chosen to opt out. In fact, many West Virginia companies, including industrial manufacturers and commercial retailers, have made a significant amount of money off of signing contracts that require them to reduce their energy needs when the regional grid is in need.
Together those companies account for roughly 587 megawatts of demand response, and in 2015 and 2016, those participating businesses - which aren't publicly known - stand to make roughly $20 million from demand response contracts, based on current pricing.
The Supreme Court's ruling is expected to be a loss for companies like FirstEnergy, which had previously petitioned FERC to end demand response bidding in regional markets entirely.
But Monday's opinion was a cause for celebration for other groups, including the Advanced Energy Management Alliance, a group that represents demand response providers.
"Demand response benefits consumers, is a proven resource that enables more efficient and cleaner operation of the electricity grid, and provides cost savings to everyone who uses electricity," the group wrote in a press release.
"We are particularly pleased that FERC stood its ground in this case," said Katherine Hamilton, the group's executive director.
Reach Andrew Brown at andrew.brown@wvgazettemail.com, 304-348-4814 or follow @Andy_Ed_Brown on Twitter.