A Win for Energy Consumers from SCOTUS

Supreme Court Rules in Favor of Demand Response

File Monday January 25, 2016 under the heading “A winning day for energy consumers!”

Why, you ask? Essentially, the US Supreme Court this morning ruled in favor of electricity system innovation that is helping consumers of electricity (and the entire electricity system) save a ton of money. They’re doing it through a technology called demand response, a way to intentionally reduce the amount of energy a customer uses during times of system need when demand is high and electricity prices are high.

Companies like EnerNOC, a Boston-headquartered, NECEC member company, provide software and services to large energy users that allow them to manage their energy use through Demand Response. EnerNOC sells demand response as a product often called a “negawatt.” They essentially value the amount of electricity a consumer opts not to use by selling it in wholesale electricity markets where electricity grid operators purchase it as part of their efforts to manage the grid. This means that the electric grid now has a more cost-effective option – less expensive (and cleaner) negawatts – instead of calling for the least efficient and dirtiest, idle power plant to increase its power output to the grid.

Yesterday, the Supreme Court overturned a DC Circuit ruling that had found in favor of the Electric Power Supply Association (EPSA) against the Federal Energy Regulatory Commission (FERC), the regulatory agency that oversees wholesale electricity markets.  EPSA had argued that FERC had no jurisdiction to treat demand response as a product that can be sold in the wholesale market and that those transactions should be overseen by the states.  EnerNOC was one of a handful of companies that led the charge against this ruling, taking it all the way to the Supreme Court.

The court ruled 6-2 that FERC’s authority is A-OK and indeed industrial and commercial energy consumers should be able to use demand response products in the wholesale market to reduce their energy use at times of peak demand. Additionally, it removes any broader threat to demand response participation in capacity markets too.

Of course this is great news for companies like EnerNOC. EnerNOC Chairman and CEO Tim Healy applauded the decision and said that this is a seminal case that "ensures an important role for demand-side resources in our nation's wholesale electricity markets” and “is a tremendous win for all energy consumers, for the economy, and for the environment.”

It’s also great news for the energy system overall as demand response has provided a critical backstop against power shortages here in the Northeast and has performed reliably under a variety of conditions. When consumption is reduced at peak demand times, it means the overall system can generate less energy, reducing costs and the air emissions associated with power plants. Although demand response has traditionally been considered to be needed most during summer periods, it has been dispatched an equal amount over the winter and provides valuable “fuel” diversity considering the region’s high dependence on gas. For example, on a Saturday night this past winter demand response was dispatched when several thousand MWs of gas-fired capacity were unavailable due to pipeline constraints. This need for “fuel” diversity will only increase as more non-gas fired generating resources retire.

The other key winners here are distributed energy resources or DER, like rooftop solar, and emerging technologies like energy storage.   Clarifying the important role of demand response participation in wholesale markets will help enable increased penetration from intermittent renewable technologies, which require balancing from flexible resources like demand response.

While this means a lot for demand response in general, the ruling symbolizes an enormous win for energy innovation and the idea that new technology can upend the status quo when the status quo is clearly not working.

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