Electricity in the New SCOTUS Season

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Michael Cain

Michael is a systems analyst, with a taste for obscure applied math. He's interested in energy supplies, the urban/rural divide, regional political differences in the US, and map-like things. Bicycling, and fencing (with swords, that is) act as stress relief.

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13 Responses

  1. Avatar Stillwater
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    says:

    Hmmm, before I can predict, I need some clarification. I’m confused about what the suit is over. Is it that utilities are allowed to pay their customers to put in a device that’ll save the utility money? (I think that’s right, FERC and all…). So I’m left wondering why doing that would ought to be illegal since it appears to me entirely consistent with normal market activity. (Or am I not getting it?)Report

    • Avatar Michael Cain in reply to Stillwater
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      says:

      The generators’ argument — and this is the way the Appeals Court went — is that payments for demand reduction is a retail transaction, so FERC has no authority over it and Order 745 that explicitly blesses demand reduction as a commodity in the wholesale markets is improper. Not addressed, as I read it, is whether the PJM ISO can create a demand reduction market on its own. That’s presumably a matter for another day — with the argument that if FERC can’t regulate it, then there can’t be a wholesale market in it.

      My reasoning for CJ Roberts is that the generators are being stupid. They will eventually lose this issue and look really bad doing it, so better in his mind to smack them now.Report

      • Avatar Stillwater in reply to Michael Cain
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        says:

        Yeahbut based on what argument? It seems pretty clear that the purpose of the Order is to incentivize reductions in retail consumption, and that the Order only applies to the retail end.

        Hmmm. This is a subtle one. Without anything more to go on, I would have to go with a ruling in favor of EPSA, but since the court even decided to hear the appeal the type of shenanigans you’re talking about might be very much in play. (Good ole Roberts…) So given that, I’m with ya: 5-4 FERC!Report

      • Avatar Burt Likko in reply to Michael Cain
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        says:

        So is Order 745 limited to wholesale transactions on its own terms, or did Congress not grant FERC the ability to regulate retail transactions, or is this an inverse commerce clause argument (Congress lacks authority to regulate and thus delegate at this atomic of a level)?Report

      • Avatar Oscar Gordon in reply to Michael Cain
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        says:

        If I’m understanding this all correctly, I agree with you. The FERC order is expanding market options, it’s just not an option the generators like.Report

        • Avatar Stillwater in reply to Oscar Gordon
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          says:

          See, that’s where things get weird. I take it that FERC’s scope of authority is limited to the wholesale side of the delivery system and because of that Order 745 is illegitimate. Or so EPSA is arguing. But that just begs the question I asked earlier and Lyle mentions as well: unless there’s some already existing restriction on retailers incentivizing reducing energy consumption by end users, the whole suit amounts to a technicality.

          But I assume that all that was discussed in the prior case and so cannot be easily dismissed on *those* grounds.Report

        • Avatar Michael Cain in reply to Oscar Gordon
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          says:

          This amicus brief from a batch of grid reliability engineers was accepted by the Court in the “in support of neither party” category. It provides a very good, concise explanation of the role of demand management in maintaining reliability in the grid from an engineering — rather than legal — perspective. When I read it with my legislative analyst hat on, though, it seems to me to have a pronounced “demand management is a critical resource for the grid operators, who function in the wholesale side of things, and it would be a good idea if you didn’t take the tool away from them” flavor.Report

  2. Avatar Mike Schilling
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    says:

    The Federal Energy Regulatory Commission (FERC) oversees the wholesale markets where generators and utilities interact.

    That is, overlooks any issues with those markets. (See California getting completely screwed by Enron, Duke Power, etc, and no regulatory relief at all.)Report

    • Avatar Michael Cain in reply to Mike Schilling
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      says:

      It took practically forever, but the FERC did eventually find in California’s interest. Unfortunately, by that time most of the bad guys had declared bankruptcy and so California got nothing. A moderately interesting theoretical outcome is that post California, and the constant tweaking that PJM has to do, Cato has actually published papers arguing that the overhead costs of ensuring that the wholesale market works properly are at least as large as the inefficiencies of vertically-integrated utilities.

      I am blessed by living in an electricity “market” that is so geographically isolated that one company is the market on the utility side, so they have an exemption from many of the rules. As a consequence, my utility can make deals to buy all of the (highly variable) output from a wind farm at a fixed price for 20 years, and under that condition the wind farm can price its electricity below the cost of new natural gas-fired generation. But it’s an unusual situation that doesn’t occur in very many places.Report

  3. Avatar Lyle
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    says:

    Actually in the dis-integrated model the retailers are the folks who would deal with the customers. (they also bid for the power needed). There is no “utility” as you suggest a retailer just needs a bank line of credit to go into the business. Since the FERC deals with generators and distributors, it seems that if the folks running the ISO’s wanted to they could allow this type of pricing with help from the various state PUCs, in making the rules. The main change would be to allow the negative energy bid. So at most the FERC would have to make its rules silent on the issue i.e. do not forbid it and let the states allow it. Then some retailers could participate and some not and the price of energy to their customers would vary.Report

    • Avatar Michael Cain in reply to Lyle
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      says:

      I don’t disagree with you, and PJM has had a demand response program for quite some time in states that allow it. That arrangement is generally limited to large individual customers who can lower or raise* their demand on a day-ahead or hour-ahead basis, rather than aggregations of small customers. There are inefficiencies to that arrangement: the PJM ISO may be paying more than they need to for load shedding (since the incentives are fixed well in advance), and sometimes the best place to shed load for reliability purposes is in a state that doesn’t have a program. Order 745’s purpose was to address those.

      I found out today that since the Appeals Court ruling, EPSA has filed suit challenging the entire concept of an ISO using demand management. PJM’s initial analysis — done because it may be important to shareholders of various sorts — says that that’s a possibly plausible interpretation of the ruling.

      * The amicus brief I mentioned in a comment above points out that sometimes a large customer can increase demand more quickly than a generator can decrease supply, which may be important in grid reliability.Report

  4. Avatar Burt Likko
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    says:

    Dude, your write up here was way, way better than anything I’d have done. Awesome job, and thanks for lightening my load this weekend.Report

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