Supreme Court Demand Response Decision has Multi-Billion Dollar Implications - Smart Energy Decisions

Demand Management, Distributed Energy Resources, Power Prices, Regulation, Utilities, Regulation  -  January 26, 2016

Supreme Court demand response decision has multibillion dollar implications

The U.S. Supreme Court ruled on Jan. 25 that FERC has the jurisdiction to regulate demand response. The decision essentially puts billions of dollars in the pockets of C&I businesses, and serves as a blow to power generators that would otherwise collect the money as revenue.

"Grid operators accept commitments for the supply of power, or the reduction of energy use, in ascending order with the last bid needed to meet demand setting the auction price," according to a recent Bloomberg article. Large power consumers like industrial operations can agree to reduce consumption during peak times and are compensated at the market rate by power producers for the electricity they would have otherwise consumed.

Utilities view this as a threat to their revenue streams and there is indeed evidence that demand response has negative financial implications for them. Proponents argue the programs increase grid reliability, decrease utility bills and prevent the need to build expensive new generation capacity.

"It will have a tremendous impact on consumers to control their energy cost and provide a service to the wholesale market," former FERC Chairman Jon Wellinghoff told Greentech Media. "It’s going to make consumers an equal participant in the market in a way they never were before. That was the intention of Order 745, and that has been vindicated."

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