Background
The Federal Power Act (FPA) divides regulatory authority over electricity markets between the federal government and the states. FERC holds exclusive jurisdiction over wholesale electricity sales and transmission in interstate commerce, while state commissions — like the Kansas Corporation Commission (KCC) — retain authority over retail sales and intrastate distribution. Demand response, the practice of paying retail consumers to voluntarily reduce electricity consumption during peak periods, straddles that jurisdictional line: retail customers sell their non-use of power into federally regulated wholesale markets, typically through third-party aggregators participating in auctions run by regional operators like the Southwest Power Pool (SPP).
In January 2023, Evergy Kansas Central, Evergy Kansas South, and Evergy Metro (collectively, Evergy) applied to the KCC for approval of tariff revisions governing retail customer participation in SPP’s demand response programs. As ultimately amended through a non-unanimous settlement agreement, the tariff added a definition of “Demand Response Aggregator,” required retail customers to complete registration forms and obtain Evergy’s consent before participating in wholesale demand response through an aggregator, and removed an earlier provision that would have required aggregators to maintain standing contracts with Evergy. The KCC approved the settlement in October 2023, rejecting arguments by Sierra Club and Vote Solar that the tariff exceeded the KCC’s statutory authority and was preempted by federal law.
Sierra Club and Vote Solar petitioned for judicial review. The Johnson County District Court reversed the KCC, holding that the tariff conflicted with FERC’s regulation of demand response by adding state-level participation standards and allowing Evergy to withhold consent from retail customers who failed to comply — and was therefore preempted by the FPA. Evergy appealed. Sierra Club and Vote Solar cross-appealed, arguing the KCC lacked any statutory authority under Kansas law to regulate retail customer activities in wholesale markets.
The Court’s Holding
The Court of Appeals reversed the district court’s judgment. The court first agreed with the district court that Sierra Club and Vote Solar had associational standing to bring the appeal: their members — retail electricity customers seeking to participate in demand response programs — faced actual or threatened injury from the tariff’s registration and consent requirements, satisfying the first prong of the associational standing test. The remaining prongs were also met, as protecting consumers from barriers to demand response participation is germane to both organizations’ purposes.
On the central issue of preemption, however, the court reached the opposite conclusion. Analyzing the tariff under established implied-preemption doctrine — field preemption and conflict preemption — the court held that the tariff is not preempted by federal law. The FPA and FERC’s implementing orders, including Order No. 719 (which expressly preserves state authority to bar retail customers from participating in wholesale demand response) and Order No. 745 (upheld in FERC v. Electric Power Supply Association, 577 U.S. 260 (2016)), do not occupy the field so completely as to leave no room for state supplementation. Nor does the tariff make compliance with federal law impossible or stand as an obstacle to FERC’s objectives: it operates within the state’s traditional zone of authority over retail customers and the safety and reliability of the distribution grid, rather than attempting to directly regulate wholesale rates or the structure of wholesale markets.
The court declined to reach Sierra Club and Vote Solar’s cross-appeal argument that the KCC lacked statutory authority under Kansas law to approve the tariff, as its ruling in Evergy’s favor on preemption was dispositive of the case.
Key Takeaways
- A state utility commission’s approval of tariff requirements that retail customers register and obtain utility consent before joining wholesale demand response programs does not constitute preempted regulation of the wholesale market under the FPA, at least where the tariff is directed at the utility’s informational and operational relationship with its retail customers.
- FERC’s Order No. 719 opt-out provision — which allows state retail regulatory authorities to prohibit customer participation in wholesale demand response — signals that Congress left meaningful room for state involvement in this jurisdictional borderland, undercutting field-preemption arguments.
- Environmental and consumer advocacy organizations can establish associational standing to challenge utility tariff proceedings before state commissions where their members are retail customers directly subject to the tariff’s requirements.
- The wholesale/retail jurisdictional line under the FPA is not hermetically sealed: states may regulate in ways that incidentally affect wholesale markets, provided they do not directly regulate wholesale rates or obstruct FERC’s mandate.
Why It Matters
As demand response grows into a significant tool for grid reliability and wholesale price moderation, utilities, aggregators, regulators, and customers across the country are wrestling with exactly this jurisdictional question: how much oversight can state commissions assert over the on-ramp by which retail customers enter federally regulated wholesale markets? This decision, siding with the KCC and Evergy against a federal-preemption challenge, signals that state regulators retain meaningful authority to impose information-gathering and consent requirements on that process — at least where the requirements are framed around distribution-system safety, reliability, and administrative clarity rather than wholesale market participation standards per se.
The ruling also has practical consequences for demand response aggregators and their retail clients in Kansas. While an earlier version of Evergy’s tariff would have required aggregators to contract directly with Evergy — a provision removed in the settlement after aggregator Voltus objected — the surviving registration and consent framework still imposes a state-level procedural layer on top of SPP’s federal registration process. Advocates for robust demand response markets will watch whether similar tariff structures in other states survive preemption scrutiny, and whether FERC weighs in to clarify the outer bounds of permissible state-level gatekeeping.