July/August 2024 Issue

Also in this issue: Wisconsin Supreme Court Upholds Condemnation of Land for Sidewalks     |     Restrictive Renewable Energy Ordinances May Be Vulnerable to Legal Challenge

Court of Appeals Invalidates PSCW Demand Response Order as Unpromulgated Rule

Liz Leonard | 08.01.24

In a recent decision in Midwest Renewable Energy Association v. Public Service Commission of Wisconsin (2024 WI App 34), the Wisconsin Court of Appeals has invalidated a 2009 order by the Public Service Commission of Wisconsin (PSCW) as an unpromulgated rule. The decision reinforces a longstanding principle that agency decisions with the force of law and intended to be generally applicable must follow rulemaking procedures under chapter 227.

The PSCW order concerned the practice known as ​“demand response.” In the electric utility market, demand response essentially pays consumers for commitments to curtail their power usage during peak hours. This allows wholesale market operators to curb peak wholesale energy rates and reduce peak demand on the energy grid. Retail customers can participate in demand response through Aggregators of Retail Customers (ARCs).

In 2008, the Federal Energy Regulatory Commission (FERC) issued an order currently codified as 18 C.F.R. § 35.28(g)(1) (2024) intended to facilitate participation in demand response programs by retail customers. It provided that regional market operators such as MISO must accept demand response bids from large-utility ARCs unless the state regulatory authority prohibited the practice. In response, the PSCW issued its order in 2009 titled ​“Order Temporarily Prohibiting Operation of Aggregators of Retail Customers.” The PSCW indicated that it was concerned the use of ARCs may be discriminatory under the Wisconsin statutes and thus prohibited retail customers of Wisconsin’s four largest utilities and third-party ARCs from transmitting demand response bids directly to MISO markets while the PSCW investigated. Despite being titled as ​“temporary,” the order stood from 2009 until Midwest Renewable Energy Association filed a complaint in 2021 challenging the order as an unpromulgated rule and appealed the case to the court of appeals.

Administrative agencies such as the PSCW may issue rules so long as they follow the procedures set forth in Wis. Stat. ch. 227. Any rule issued without following these procedures is invalid and cannot be enforced. As there was no question that the PSCW did not follow the procedures set forth in Wis. Stat. ch. 227, the question the court of appeals addressed was whether the PSCW’s 2009 Order constituted a ​“rule” as defined by Wis. Stat. § 227.01(13) or qualified as some other type of Order such as a guidance document or a statement of policy.

After dispatching with various preliminary issues, the court of appeals applied the familiar five-element test articulated in Citizens for Sensible Zoning Inc. v. DNR, 90 Wis. 2d 804, 280 N.W.2d 702 (1979) to determine if the 2009 PSCW Order constituted a ​“rule.” The test asks whether the order (1) is a regulation, standard, statement of policy or general order, (2) of general application, (3) having the effect of law, (4) issued by an agency, (5) to implement, interpret or make specific legislation enforced or administered by such agency. The court of appeals held that all five elements were met, making the order an unpromulgated rule, and therefore invalid.

The primary point of discussion by the court was whether the Order satisfied the second element of the test requiring it to be of ​“general application.” When considering whether an order is of general application, the court considers whether it applies to a class of people, even if the class is small, or whether it applies to only a specific, fixed set of individuals under specific factual circumstances. The court of appeals determined that the Order applied to regulate a class of people, namely ARCs and customers of large utilities, and did not merely regulate the four named large utilities in the state. As such, the Order was of general application.

The effect of the court of appeals decision is immediate — the order is invalidated and cannot be enforced until the PSCW properly follows the rulemaking procedures in Wis. Stat. ch. 227. This means that retail customers of the state’s four largest electric utilities may now participate in ARCs that may submit demand response bids to MISO.