Energy policy development is complicated. Recall that the electric industry has been regulated for more than 100 years and it remains highly regulated today, even with competitive markets. Moreover, both the Federal government and States have roles to play in regulation. Using examples, this article focuses on federal jurisdiction over “wholesale” electricity that flows across state lines and is not sold for direct consumption to end users. Sales to end users, including authorization of competitive retail suppliers, is the exclusive jurisdiction of the states.
In the U.S., policy at the highest level is established by Acts of Congress and the President. It is implemented by the executive branch including the Federal Energy Regulatory Commission (FERC) and the Department of Energy (DoE). This policy establishes a framework for the tariffs that govern the use of the nation’s electric transmission grid. It is useful to think of this framework as a “top down” process. The owners and operators of the transmission grid, in turn, submit tariffs that comply with the law and policy to FERC for approval. The development of tariffs is a “bottom up” process.
Three examples of the biggest orders to come out of FERC during President Obama’s administration include FERC Order 745, which required ISOs and RTOs to pay customer-side capacity resources such as demand response an equivalent value to what power plants and other supply-side resources earn; FERC Order 755, which required ISOs to create programs to reward “fast-responding” resources such as batteries for frequency regulation; and FERC Order 1000, which has set up a new regime for transmission operators and utilities to plan for, and pay for, regional grid investments.
The FERC has been instrumental in creating Regional Transmission Operators (RTOs) through policy decisions. RTOs and Independent System Operators (ISOs) have largely eliminated the need to set wholesale electricity prices by a fixed tariff and instead allow prices to be established by markets. The detailed implementation of electric policy is done at the RTO level. FERC’s decisions and orders apply to the tariffs of ISOs and RTOs that run much of the U.S. power grid. About 70 percent of the country is served by ISOs and RTOs, which fall under federal jurisdiction because they cross state lines.
The shift to RTOs has not eliminated the need for regulation of electricity. Instead it has shifted the regulatory focus from setting prices to setting market rules. The market rules are embodied in the RTO tariffs. The FERC is responsible for approving the RTO tariffs. The RTO tariffs are developed with varying degrees of stakeholder input, depending on the RTO itself. The basic process follows the steps from stakeholder consideration to RTO and final review and approval by FERC using stakeholder input as shown below:
Each RTO handles stakeholder consideration differently. PJM Interconnection, for example, is the only RTO that is required to accept stakeholder recommendations as determined by a vote – at least on some issues. Other RTOs simply consider the input of stakeholders and file what they think best. There is little doubt that PJM has the most robust process. Most issues are addressed through a series of meetings that follow a set process. The process is not unlike a government legislative body with committees, subcommittees, etc. Often stakeholders reach consensus and many issues are resolved with no or nominal opposition.
Demand Response Policy Considerations
Perhaps one major exception to consensus pertains to issues involving capacity market design, including Demand Response (DR) participation. On these issues, stakeholders are typically split between generation owners – including incumbent utilities – and load interests. This is because any changes that reduce the opportunity for generation participation or revenue leads to reduced income for generators. Such changes include enabling competitive resources such as DR and reductions in overall capacity requirements.
Conversely, stakeholders representing users of electricity oppose changes that increase costs without a credible probability of improving reliability. As a result, most controversial issues have competing proposals. Stakeholder votes are allocated in such a way that a required two-thirds’ supermajority (this applies to PJM) for approval of contested changes is difficult to reach. A deadlocked stakeholder process allows PJM to file changes that may not have broad stakeholder support. RTOs are non-profit entities without a commercial stake in market outcomes. However, as organizations, PJM and other RTOs have an inherent bias toward “reliability” which often results in costly requirements for more resources, especially conventional generation.
Stakeholders that oppose an RTO filing have the opportunity to “protest” the tariff changes at FERC. FERC need only determine that a filing is “just and reasonable”. While ostensibly the “just and reasonable” standard may include cost considerations, FERC, like PJM and other RTOs, also has a bias toward reliability and often will accept the RTO filing regardless of cost implications.
FERC Decisions and the Appeals Process
FERC decisions can be appealed to the federal courts on the basis non-compliance with the governing law, or an “arbitrary and capricious” decision. Appeals Courts avoid ruling on the substance of a FERC ruling because this can place the Court in the position of creating laws and regulations. Appeals Court decisions can be appealed to the Supreme Court as occurred in the high-profile case of FERC Order 745. In particular, owners of conventional generation (the petitioners) opposed the Order because the treatment of demand response threatened their revenues and they took FERC to court. The case hinged primarily on the issue of state versus federal jurisdiction (was the Order consistent with the Federal Power Act’s provisions designating retail rate setting as the exclusive jurisdiction of the states?).
In a major victory for the DR industry, the U.S. Supreme Court upheld FERC Order 745 via a 6-2 decision in January 2016, reversing a lower court opinion that found that it violated states’ jurisdiction over retail energy pricing, and dealing a blow to the utility group that brought the original lawsuit. DR providers and environmental groups supported FERC Order 745, noting that it has opened markets that have brought significant new demand-side capacity to the country’s grid operators for use in controlling the wholesale grid. Order 745 also helped reduce the need for fossil fuel-fired power and lowered overall electricity costs for consumers. But the underlying legal question behind the lawsuit — the bounds between federal and state jurisdiction over energy markets — could be modified by Acts of Congress.
You can see why the process of defining energy policy can be extremely complicated in practice. CPower takes a leadership role in shaping market transformation and regulatory reform, while working hard to maximize program benefits for our customers. It’s imperative that our Market Development team constantly stays abreast about regulatory processes as thought leaders in the DR community. These efforts enable us to provide services that take the complexity out of DR participation within the context of changing program rules, while optimizing your energy savings and earnings. This will become increasingly critical as energy markets continue to transform in the near future.
The 2016 PJM summer compliance season which runs from June through September has come to an end without a PJM-initiated emergency demand response (DR) event. The first six months of the year were already one of the warmest on record. So, for many of us sweating it out across the northeast, it was no surprise that this summer produced several heat waves that pushed system peaks to their highest levels in recent years. PJM’s top 5 system peaks (see table), reflect the summer’s weather and should be the Five Coincidental Peaks (5CP) that drive customers’ capacity charges through their Peak Load Contribution (PLC). It is important to note that any load reductions during these hours may reduce your capacity charges for next summer.
When it came to actual demand response events, however, a different picture unfolded compared to prior years. For instance, the 2013 summer saw system peaks at similar levels and was one of the most active summers for demand response customers ever. So you may ask: Why were no Emergency DR events called this summer, despite the heat and high system peaks? A few reasons come to mind:
- Some of it may be attributed to PJM’s new reliability product, Capacity Performance (CP), which debuted this delivery year and imposes greater availability requirements on generation;
- Some of it may be attributed to increased transmission efficiency;
- Also, flat or declining system peaks are starting to reflect the impact of energy efficiency regulations (the last system peak demand record was set in 2007); and finally
- Pure Luck? After all, the timing of several heat waves passing through the PJM territory coincided during weekends.
Whatever the primary reason(s), PJM Emergency DR customers should take pride in their commitment to be on standby to reduce load when called upon. Your ability to curtail electricity consumption when needed by the grid is a tremendous asset to maintaining system reliability and preventing potential blackouts/brownouts.
This doesn’t mean that PJM may not have a reliability issue beyond the summer as the program year does run through May 2017. Also, while the summer period yields the greatest risk of an emergency event, demand response customers that have committed to curtailments all year should continue to be prepared to perform and reduce load if/when needed to support grid reliability.
Moreover, with the transition to the new CP product, demand response is morphing into a year-round program. Customers can start participating in CP now to get themselves prepared for the coming changes and earn additional capacity revenue in the process. Many forward-thinking facility managers are already thinking about how they may be able to participate beyond the summer and are reviewing effective winter curtailment strategies.
CPower would like to take this time to thank all demand response customers for their commitment to PJM reliability this summer. CPower customers can always review their load drop test and event performance in the CPower App and should be expecting summer performance reports and payments starting early November.
Last but not least, we always encourage all participants to stay tuned for earnings opportunities in other DR programs available. Many participants augment their demand response earnings from the capacity program via active participation in PJM’s voluntary programs such as (price based) economic demand response and (faster response) ancillary services such as synchronized reserves.
Please feel free to contact Dann or the CPower team if you have any questions. Our engineering team is happy to help you understand the nuances of participating in these programs and assist in optimizing your overall energy savings and earnings year round.
Scotland Yard’s ace sleuth may not have intuitively known the finer points of a fixed price, index, or hybrid energy supply contract. He likely didn’t have the foresight to know which energy efficiency project will produce the best return on his investment. And, given that his heyday was about a century before the creation of the free energy markets, Sherlock Holmes probably didn’t have a clue about developing a load reduction strategy to maximize his demand response earnings.
What Sherlock Holmes did understand was the need to gather reliable data before making any important decisions. The same philosophy that worked for tracking villains in the 19th century also works for making energy decisions today. The more you know about your energy consumption, the better your decisions concerning your energy usage will be.
The best place to start gathering data is your utility bill (elementary, my dear energy manager). Your utility bill will give you an indication of how much energy you’ve consumed over the past month. If you have a consumption meter, you will see the total amount of kilowatt hours that have flowed over the entire period, typically a month. Larger customers will have an interval meter, which will measure their consumption in hourly or even 15 minute intervals.
The Smart Meter is essentially a 15-minute interval meter, but has a wireless connection that allows the utility to read it over-the-air. However, many utility smart meter implementations are configured to only read the meter once each day. Smart meters get us closer to real- time data, but not all the way there.
Why is real time data so important to unlocking the mysteries one must solve in creating an optimized energy strategy? In the words of Mr. Holmes, himself, “there is nothing like first-hand evidence.”
Real-time data provides not only evidence for understanding how you currently use energy, but also valuable clues for how you plan on using energy as part of your energy management strategy. Just as Sherlock Holmes used a magnifying glass to examine the details of his surrounding world, so too do you need a tool to monitor your energy usage in real- time.
CPower offers a complete demand response solution on your desktop or mobile device that allows you to see your facilities’ energy usage in real-time. The data is captured in one-minute intervals and then sent over a secure transport, which never touches your network. The data is then sent directly to you on your PC or smart phone.
CPower’s technology gives you the ability to observe rather than merely see and gives you the data you need to make smart decisions about your energy. The best part is that if you are a CPower Demand Response customer, the CPower App and its capabilities are part of the services we provide at no out-of-pocket cost to you.
Real- time energy data is at your fingertips with the CPower App. Take a peek at a video featuring the CPower team behind the technology explaining how the right info at the right time can make all the difference when making energy decisions.
The game is afoot!