NERA Affidavits Cited in Supreme Court’s Decision in Federal Energy Regulatory Commission v. Electric Power Supply Association

03 February 2016

New York—Affidavits authored by the late NERA Special Consultant Alfred E. Kahn, and supported by Vice President Jonathan Falk and Affiliated Consultant Dr. Michael Rosenzweig, were cited by US Supreme Court Associate Justice Elena Kagan in the Court’s ruling in Federal Energy Regulatory Commission v. Electric Power Supply Association.

This case came to the Supreme Court on writ of certiorari from the Court of Appeals for the District of Columbia Circuit (“Court of Appeals”). At issue in the case is FERC Order No. 745 (“Rule”), which requires wholesale market operators to set an equal price for demand responsive providers who conserve energy and generators who produce energy. The Court of Appeals vacated the Rule, holding that FERC did not have statutory authority to issue the order because its role as regulator is limited to the wholesale market and demand response is an action by retail customers, not wholesale customers. The Court of Appeals also held, in the alternative, that the compensation scheme in the Rule is arbitrary and capricious under the Administrative Procedures Act.

In 2009, Dr. Alfred Kahn was asked by a consortium of demand-side market participants, including NERA’s client EnerNOC, to support the notion in a particular wholesale market that one of the best ways to increase participation by the demand side in these markets was to pay them more to restrain consumption below what they would have consumed under their retail tariff and to pay them exactly what generators were paid to bring supply and demand into balance: the so-called Local Marginal Price (LMP). In a subsequent FERC proceeding in 2010, seeking to find the proper rate to apply in all wholesale markets in the US, Dr. Kahn (assisted by Mr. Falk and Dr. Rosenzweig), filed another affidavit further explaining his reasoning and responding to his critics.  FERC sided with Dr. Kahn and quoted his affidavit extensively in defense of their decision, Order 745. In a 6-2 decision, Justice Kagan, writing for the majority, affirmed not only the jurisdiction of FERC to issue Order 745, but, quoting directly from Dr. Kahn’s affidavit, gave FERC credit for following reasonable advice to a reasonable conclusion.

“We are pleased with this favorable decision on behalf of our client,” said NERA President Dr. Lawrence Wu. “Since our founding over 50 years ago, NERA continues to position itself not only as the leading provider of economic consulting, but as the consulting firm clients turn to for advice and expertise when facing the toughest legal challenges and regulatory hurdles.”

“This affidavit was one of the last pieces of intellectual capital Fred and his team wrote before his passing in December 2010,” continued Dr. Wu. “With his storied career in economics, I can only imagine how pleased Fred would be to know that his life’s work continues to be of influence at the highest levels of law and regulation in the United States.”

Dr. Kahn played an important role in the founding of NERA, acting as an advisor to company founders Irwin Stelzer and Jules Joskow. In addition to the inspirational and collaborative support Dr. Kahn provided to the firm since its founding, he also acted as an expert witness in many regulatory matters on behalf of NERA. He was particularly influential in client issues regarding antitrust, flat rate pricing for telecommunications, marginal costing in both telecommunications and electricity, and net neutrality.

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.