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On January 25th, the Supreme Court issued a 6-2 (Justice Alito recused himself) ruling reversing the 2014 U.S. Court of Appeals for the District of Columbia Circuit judgement that overturned Federal Energy Regulatory Commission (FERC) Order 745 which governs wholesale Demand Response. This is a very important ruling in that the decision allows Demand Response to grow without the legal overhang that has been present since the May 2014 reversal decision.
We have reviewed Demand Response on this page before but for new readers it is worth repeating the Demand Response definition as provided by FERC, “Changes in Electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized”. In a world where electricity capacity payments and other non-energy charges are rising significantly, participating in a demand response program may allow customers to recoup some of these costs, when possible, using their load as an asset by pledging to reduce consumption to pre-determined levels.
While Demand Response can be done in regulated areas, the more transparent arena in which to provide demand response is in one of the Regional Transmission Organizations (RTOs) such as PJM, New England System Operator (ISO-NE), New York System Operator (NY-ISO) etc. Each has different rules, programs, and the revenue streams are different according to each RTO and particular period of time. There are generally two types of Demand Response: Demand Response and Capacity Demand Response (with Capacity Demand Response being the more prevalent type). During a grid event, customers are asked to reduce their load by a certain pre-determined amount, thereby reducing the need to build “peaking” generation plants. Formally, many commercial customers would forgo demand response opportunities because they were not confident that they would be able to meet their obligation. However, the continued development of smart meters, smarter building automation systems and even the availability of battery storage have made the task of responding to reduction signals much easier and sometimes quite lucrative. Please do not hesitate to contact us for information on the different Demand Response programs available.
Analyst – David Mousseau
Sources – CME Group, Reuters
