Supreme Court: Demanding a Response to Demand Response

Supreme Court: Demanding a Response to Demand Response
On January 25, 2016, the United States Supreme Court ruled in a 6-2 decision to uphold the Federal Energy Regulatory Commission’s (FERC) regulation of demand response (DR) in wholesale markets. While FERC v. EPSA (Electric Power Supply Association) is a victory for demand response and energy conservation programs across the nation, the magnitude of this ruling’s impact on distributed energy resources, as a whole, will only be unveiled with time.
Demand response is the voluntary curtailment of load by electricity consumers during times of peak demand in order to not exceed generation, transmission, or distribution constraints. The Supreme Court’s debate at-hand emerged from FERC Order No. 745, which requires wholesale market operators to compensate customers for Demand Response at a rate equal to the locational marginal price (LMP). Dissenters of FERC Order No. 745 argued two-fold: FERC should not have the jurisdiction to regulate demand response participation in the wholesale markets because demand response occurs at the distribution level and demand response participants are receiving an unduly higher compensation than they should be receiving.

Nevertheless, the Supreme Court ruled in favor of FERC under the construct of the United States Federal Power Act, which grants FERC the jurisdiction to regulate wholesale markets such that they have fair and just prices. As a result, demand response can now unequivocally act as a virtual power plant that reduces load during times of peak demand. This can bring added cost-savings to the bulk power system, as demand response can defer generation, transmission, and distribution capacity upgrades. Furthermore, demand response can bring added reliability by making the demand curve of electricity more flexible during times when the supply curve is more rigid (i.e. Hurricane Sandy and Polar Vortex).
While the focus today remains on demand response, the true ramification of the Supreme Court decision lies in what this means for all distributed energy resources (DERs) in the future. As rooftop photovoltaics and behind-the-meter energy storage continue to disrupt the utility business models and catalyze grid modernization, what will their role be in wholesale energy and capacity markets? When DERs become more networked and begin to aggregate into virtual power plants, how will that impact distribution and transmission system operators? With the Supreme Court clearly defining the highest law in support of demand response, who will emerge as the next leaders in the energy revolution?
Officers stand outside the Supreme Court in Washington on Friday, Jan. 22. (AP Photo/Susan Walsh)

Article, By Arjan Sidhu

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