U.S. justices question Obama administration electricity markets rule

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WASHINGTON Conservative U.S. Supreme Court justices on Wednesday expressed doubt about whether the Obama administration had the authority to issue a regulation aimed at encouraging efficiency in the electricity market by having electrical grid operators pay users to reduce consumption at peak times.

The court heard oral arguments in an appeal filed by the U.S. Federal Energy Regulatory Commission seeking to reverse a May 2014 ruling by the U.S. Court of Appeals for the District of Columbia Circuit that threw out the rule. The regulation, aimed at improving grid reliability, lowering costs and encouraging clean energy, remains in effect as the litigation continues.

The nine-member court could be split 4-4, with conservative Justice Samuel Alito recusing himself from the case.

"Supreme Court justices on Wednesday expressed doubt about whether the Obama administration had the authority to issue a regulation aimed at encouraging efficiency in the electricity market by having electrical grid operators pay users to reduce consumption at peak times.The court heard oral arguments in an appeal filed by the U.S"An even split would uphold the lower court ruling.

Chief Justice John Roberts said during the oral arguments he was concerned about the federal government exercising too much authority over retail electricity markets, which are traditionally overseen by states.

"You have to have some sort of limiting principle, otherwise FERC can do whatever it wants," Roberts said.

Justice Anthony Kennedy, who often casts the deciding vote in close decisions, asked questions that would indicate he could favor a narrower ruling against the government that would allow FERC to rewrite the regulation.

FERC says the program affects only the wholesale electricity markets. One of the regional groups that operates the wholesale markets, PJM Interconnection LLC, estimates that demand-response has saved customers in its area between $9.3 billion and $11.5 billion in one year.

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 electricity users to cut consumption at peak times.

The Electric Power Supply Association, other trade groups that represent utilities and PPL Corp challenged the regulation. They would lose out if the regulation is allowed to stay intact because it is likely to reduce demand for electricity generation.

Some utilities and companies like EnerNOC Inc that have developed products to help customers lower electricity usage had backed the government's appeal, as did companies that can benefit from the payments, including water utility Aqua America Inc.

The Electric Power Supply Association's members include Exelon Corp and Dynegy Inc. Also challenging the regulation is utility group Edison Electric Institute, which represents such companies as Entergy Corp and Southern Company.

A ruling is due by the end of June.

(Reporting by Lawrence Hurley; Editing by Will Dunham)