WHY FERC 745 IS ABOUT MORE THAN DEMAND RESPONSE
Ushering in January with a prediction for the top energy stories of the year might seem a bold move, especially in an industry changing more rapidly now than at any time in recent memory. I am confident, however, in eschewing the traditional “Top 10” list and instead rolling out my own “Top 1” list for 2016.
Specifically, barring some huge or unexpected turn of events, the U.S. Supreme Court’s decision in FERC v. EPSA — aka, the FERC 745 case — will be the biggest energy market story of the year.
The importance and potential impact of FERC 745 can be gauged by the hundreds of people who turned out at the Supreme Court on Oct. 14, the day case was argued, hoping to get one of 50 available seats in the court chamber. A friend, who lined up in the wee hours of the morning, got one of the last seats, but most — a veritable who’s who of the Washington, D.C. energy world — didn’t make the cut, myself included.
And I was in line before 7 a.m.
Waiting for FERC 745: Hundreds lined up outside the U.S. Supreme Court on Oct. 14, 2015, hoping to get a seat for the oral arguments in the FERC 745 case.
A quick recap will explain what makes this case so critical. The Federal Energy Regulatory Commission (FERC) — the independent government agency regulating interstate transmission of natural gas, oil and electricity — issued Order 745 in 2011, requiring regional grid operators to pay wholesale market rates for dispatchable, cost-effective demand response resources.
In their simplest form, the affected demand response programs pay consumers for cutting their energy use at times of peak demand, in response to a dispatch signal from a grid operator.
The order was challenged in federal court by the Electric Power Supply Association (EPSA), an industry trade group representing traditional generators, and in May 2014, it was overturned by the U.S. Court of Appeals for the District of Columbia Circuit. It is the D.C. Circuit’s decision — and how it could be applied to other energy market issues if the Supreme Court upholds it — that has elevated 745 to the center of attention for many in the energy sector.
FirstEnergy, a large investor-owned utility, and the New England Power Generators Association (NEPGA), another trade association, have already filed complaints at FERC, seeking to expand the D.C. Circuit’s decision. They want to remove demand response from the regional capacity markets operated by PJM and ISO New England respectively.
PJM is a regional transmission operator (RTO) in the mid-Atlantic and Midwestern regions, while ISO New England is an independent system operator (ISO) in the Northeastern region. Both operate energy and capacity markets under FERC jurisdiction.
If the Supreme Court upholds the D.C. Circuit decision, other energy resources could soon be under attack from traditional generators, and ISO- and RTO-based electricity markets could be in turmoil. FERC has not ruled on the FirstEnergy or NEPGA cases, and will not likely do so before the Supreme Court rules in FERC v. EPSA.