US Supreme Court to review compensation to power users who cut peak-time use

The US Supreme Court will review whether a federal agency had the authority to demand that electricity generation companies should compensate consumers who cut their electricity consumption during peak demand hours.

The court said it would determine whether the Federal Energy Regulatory Commission's (FERC) ''demand response'' approach adopted in 2011 exceeded its statutory authority.

According to environmentalists, the Obama administration and a number of large consumers, demand response was an important component of the programme that sought to encourage people to use less energy overall thereby reducing the amount of harmful emissions.

Grid demand for electricity varies periodically, peaking usually in the afternoon and evening each day as well as seasonally. On very hot days power companies have to bring additional power plants online to meet the higher demand.

However, the ''demand response'' approach looks to reduce how much power people or companies use during these peak times to alleviate the grid burden.

The FERC's rule provided provisions for compensating companies or individuals who voluntarily cut their power usage at peak demand. ''A market functions effectively only when both supply and demand can meaningfully participate,'' FERC noted in promulgating the rule.

FERC exercises oversight on the wholesale electricity markets, and under ''demand response,'' known as Order 745, the agency is allowed to require regional grid operators to boost payments to factories, grocery store chains and other major power customers who cut their energy use during the afternoon and hours of peak demand.

However, in a ruling, last year, the federal appeals court said only state authorities, not FERC, were allowed to regulate demand response programmes.

The District of Columbia Circuit Court's decision came on lawsuits brought by the Electric Power Supply Association, whose members include Exelon Corp, Dynegy Inc, and the representative of utilities such as Entergy Corp and Southern Co, Edison Electric Institute.

Opponents claim demand-response payments had become excessive, and they were increasingly eroding utility revenues. The FERC rule distorts electricity markets ''by dramatically overcompensating retail customers for not consuming energy,'' the Electric Power Supply Association said, The Wall Street Journal, reported.