Supreme Court scores a major win for demand response and consumers by upholding FERC Order 745
February 1, 2016
Jan. 25 was a good day for demand response and consumers, thanks to a 6-2 Supreme Court decision overruling the U.S. Court of Appeals for the District of Columbia Circuit and affirming FERC Order 745, a move that preserves the Federal Energy Regulatory Commission's right to regulate demand response (DR) programs in wholesale markets, according to Utility Dive. The decision came in response to a 2014 ruling that sided with major generation owners in their bid to limit regulatory control of DR programs to states. Siding instead with FERC (Federal Energy Regulatory Commission), the Supreme Court ruled that the ripple effects of federal manipulation of wholesale DR markets do not constitute an infringement on the rights of states to control their respective retail markets.
This is an important victory for consumers and demand response. If the ruling was not overturned regional demand charges would have increased dramatically. Demand response is less expensive to dispatch than peaking power plants plus a reduced demand helps avoid investment in electricity transmission & distribution. There is also an environmental benefit since demand response minimizes emissions that comes along with operating older and dirtier peaking power plants. With this victory, consumers in the PJM Grid can effectively become prosumers (producers and consumers of electricity), and generate revenue by freeing up power on the grid. Additionally, the order creates new opportunities for energy customers with access to energy storage and renewables to be recognized as virtual power plants, an advantage for customers to remain competitive with energy generated by utilities and the source of major incentives for customers to participate in DR programs.
Generation owners argued that FERC felt like overreach
The battle against FERC Order 745 kicked off in 2014, when the Electric Power Supply Association (EPSA) filed a law suit against FERC, arguing that the order directly interfered with the autonomy of state utility commissions in determining the retail cost of energy. According to Power Magazine, the suit was filed just a year after PJM, a major Regional Transmission Organization (RTO) servicing half of the eastern United States, saw customers save $12 billion in energy costs thanks to taking advantage of DR programs in their home states. While these consumer savings strike most as a benefit, major generators bemoaned that the loss of revenue represented an unstable market transition and an infringement on states' rights.
The group of generators were initially successful in eliminating FERC Order 745, thanks to a ruling by the D.C. circuit courts, however the recent Supreme Court decision has upheld the federal government's ability to keep DR accessible for energy customers.
"The Supreme Court decision keeps DR accessible for energy customers."
The decision keeps the door open for energy storage
In addition to the ruling, the success of DR programs depends on the ability of energy customers to deploy demand response ready technologies, like energy storage, which allow these users to shed electric loads based on the needs of the power grid. Customers who participate in load shedding according to the cues of the local utility are then compensated for their assistance according to the wholesale cost of the electricity. Had the vacating of FERC been upheld instead, major generators may have created a lull in participation by adjusting DR rates so that they did not benefit the customer so strongly.
Instead, the Supreme Court ensured that energy storage remains a driving force behind energy management and energy cost savings. The Natural Resources Defense Council pointed out that customer-side energy storage technologies offer considerably faster and more accurate sources of extra capacity for the power grid than traditional fossil fuel plants. This trend is sure to encourage a long-term relationship with DR and customer-side energy storage.
"The Supreme Court affirmed the right for consumers to play a role in reducing peak power on the American electric grid. This is beneficial because it preserves energy storage's role as a customer-sited resource that can be used proactively for on-call conservation, otherwise known as Demand Response," Director of Energy Solutions, Evan Berger.
Beyond demand response
The defense of FERC Order 745 ensures that opportunities for commercial energy customers to harness energy storage solutions and contribute toward the grid's stability remain open for the foreseeable future. As for those regions without demand response programs already, this ruling may open the door to new demand response programs.
However, there will still be regions that don't adopt demand response. For those consumers, demand flexibility will provide similar effects. In fact, taking advantage of demand flexibility solutions can help customers cut energy costs by up to 40 percent. Though different from demand response, demand flexibility represents a great vehicle to harness demand side management solutions such as thermal energy storage to reduce grid peaks. In essence, demand flexibility relies on retail grid signals as opposed to wholesale price signals for demand response.
Some businesses have already demonstrated the cost-saving benefits of using energy storage to take advantage of available DR programs and demand flexibility. For example, 1500 Walnut Street, a 22-story, 270,000-square-foot high-rise commercial building located in Philadelphia, utilizes energy stored in the form of ice to earn $10,000 per year in DR savings. During demand response events, 1500 Walnut Street calls on the stored energy to substantially reduce its mechanical cooling load without any effect on the tenants, unlike alternative demand response methods such as changing the thermostat and shutting off lights during energy emergencies.
This DR savings is in addition to demand flexibility savings. By creating cooling at night when demand charges are less expensive, the commercial building is able to shed its energy load when demand charges are highest. These benefits of over $40,000 in energy cost reductions from demand flexibility occur during summer months when stored ice is used to offset HVAC cooling loads on a daily basis.
The same storage system is used by the Marriott International headquarters in Bethesda, Maryland, to not only earn upwards of $50,000 thousand in annual DR savings but also to help the facility earn credits toward LEED Gold certification.
