What Does the Supreme Court’s FERC 745 Ruling Mean to My Business?
On January 25, 2016 the Supreme Court issued an important decision for the energy industry when it upheld the Federal Energy Regulatory Commission’s (FERC) Order No. 745, finding the federal agency acted within its authority under the Federal Power Act. Order No. 745 gives FERC the authority to compensate Demand Response resources at the same locational marginal prices that generating resources receive in the energy market. The Supreme Court case overturned a May 2014 ruling by the US District Court of Appeals for the District of Columbia (DC Circuit) that struck down Order No. 745 on the grounds that FERC had exceeded its authority and infringed on the states’ rights when it issued the rule.
So what does this exactly mean for the consumer who operates and procures power in the retail space? We’re here to help guide you through this ruling and explain how this may affect you and your business.
What is Demand Response and how can a Demand Response resource operate in the same manner as a generating resource in the energy market?
Demand Response* programs allow customers to receive financial incentives to curtail their usage during times when the power grid may be constrained for power supply. Independent System Operators (ISOs) and Regional Transmission Operators (RTOs) use financial incentives for resources to balance out the region’s supply and demand for electricity. For example, a curtailment of 1.5 megawatts of power that would otherwise be consumed in a particular hour will reduce demand and may help ensure grid reliability.
What does it mean for the future of energy prices?
Theoretically, the continued inclusion of Demand Response resources in the wholesale energy market should mean more resources to balance marginally increasing power demand across the country. More market participants and competition should mean lower prices, but in some ISOs and RTOs, rules governing demand response are still developing, and these rules can have significant impact on market dynamics.
What does it specifically mean for the New England and New York power markets?
ISO New England originally had plans to integrate Demand Response into the wholesale power markets long before the DC Circuit made its ruling to vacate Order No. 745. So, while the appeal was pending at the Supreme Court, those plans were in a holding pattern for about a year. Now that the Supreme Court has ruled, the process in New England can move forward.
The Court’s decision does not impact the New York Independent System Operator’s (NYISO) pending compliance filing for Order No. 745. We are not aware of immediate plans for full Demand Response integration into the wholesale energy market in New York.
What does it specifically mean for the Mid-Atlantic and Midwest power markets?
PJM’s Order No. 745 compliance filing became effective in July 2012 and remains in effect given the Supreme Court’s ruling. Costs for customers in PJM’s ComEd (IL) and Ohio markets associated with Order No. 745 compensation account for a small proportion of a customer’s all-in fixed price (on the order of ~$0.05/MWh).
MISO’s most recent Order No. 745 compliance filing remains pending before FERC at this time. Currently, retail customers in MISO (DTE, Consumers, and Ameren IL) do not pay a separate line-item cost related to FERC Order No. 745.
What does it specifically mean for the California power markets?
The California Independent System Operator (CAISO) and Investor Owned Utilities (IOUs) have offered several Demand Response programs for years, although traditionally the IOUs have secured demand-side resources via bilateral contracts.
The CAISO currently offers both Proxy Demand Resource (PDR) and Reliability Demand Response Resource (RDRR) products, which allow Demand Response resources meeting certain criteria, via a Demand Response Provider (DRP), to bid into the CAISO market as supply. The PDR product requires a minimum load curtailment of 100 KW, but allows smaller load to be aggregated together. The RDRR product requires a minimum load curtailment of 500 KW.
On December 4, 2014, the California PUC also issued Decision 14-12-024, approving a settlement that facilitates development of a pilot Demand Response Auction Mechanism (DRAM) program to introduce an open bidding process for demand response. Last month, the IOUs revealed winning bids in the state’s first auction, with utilities acquiring more than 40 MW from a wide range of vendors. The state’s DRAM allows for aggregators to submit bids from a diverse mix of resources, from customer battery storage to EVs. In addition to these options, the various IOUs provide utility-specific Demand Response programs.
Regarding FERC Order No. 745 specifically, Jill Powers, Smart Grid Solutions Manager at the CAISO, was quoted in a recent article as stating that California was continuing to make enhancements to its Demand Response programs, but did not see major implications for the CAISO market at this time.
For more information, contact us today.
*Load Response is offered by Cpower Corp. through a strategic alliance with Constellation
ISO New England Newswire, “New England readies to move ahead with full integration of demand response after SCOTUS decision”, 4 February 2016:http://isonewswire.com/updates/2016/2/4/new-england-readies-to-move-ahead-with-full-integration-of-d.html
Gavin Bade, “Supreme Court upholds FERC Order 745, affirming federal role in demand response” Utility Dive, 25 January 2016 http://www.utilitydive.com/news/updated-supreme-court-upholds-ferc-order-745-affirming-federal-role-in-de/412668/