United States: What's Next? Potential Impact Of The Landmark Supreme Court Decision In FERC v. EPSA On Demand Response Across The Country

By now, much has been written about the January 25 decision by the United States Supreme Court (the Court) in Federal Energy Regulatory Commission v. Electric Power Supply Association, Docket No. 14-840, and EnerNOC, Inc. v. Electric Power Supply Association, Docket No. 14-841 (together, EPSA II). EPSA II reversed and remanded the D.C. Circuit Court of Appeals (D.C. Circuit) decision holding that the Federal Energy Regulatory Commission (FERC) did not have jurisdiction over demand response (Electric Power Supply Ass'n v. FERC, 753 F.2d 216 (D.C. Cir. 2014) [EPSA I]). That D.C. Circuit decision found that FERC had exceeded its jurisdiction in electricity matters in Order No. 745 (Docket No. RM10-17), which required wholesale market operators to pay retail customers the full locational marginal price (LMP) for reducing their energy consumption (referred to as G) rather than a lower rate that nets out the customer's savings from purchasing less energy (LMP-G). The Supreme Court held that FERC was within its authority under the Federal Power Act (FPA) to regulate market operators' compensation of customers for demand response (DR) in the organized wholesale markets and FERC's decision to compensate demand response providers at LMP rather than LMP-G was not arbitrary and capricious.

So now that the Supreme Court has spoken, what's next? This Advisory seeks to answer that question.

Remand to the D.C. Circuit

Pursuant to the Supreme Court's decision, the case will now be sent back to the D.C. Circuit for further proceedings. The formal judgment remanding the case is likely to be issued by the end of February. 

On remand, the D.C. Circuit may have to address one remaining issue left undecided in the D.C. Circuit's initial decision. When the case was before the D.C. Circuit previously, the California ISO (CAISO) and California Public Utilities Commission (CPUC) (collectively, the California Petitioners) argued that in issuing Order No. 745, FERC failed to make the prerequisite finding under Section 206(a) of the FPA that the cost allocation methodology it had accepted in CAISO's tariff filing submitted in response to FERC's earlier demand response rulemaking (Order No. 719)1 was now unjust and unreasonable. The California Petitioners explained that pursuant to FERC's Order No. 719, CAISO had submitted tariff revisions to FERC updating its cost allocation methodology to permit demand response resources to participate in the wholesale market. CAISO's Order No. 719 tariff provisions were developed through the region's stakeholder process and, after FERC approval of the same, CAISO spent millions of dollars implementing those changes. Nine months after CAISO's Order No. 719 tariff changes were approved, FERC issued Order No. 745. 

The California Petitioners argued that FERC exceeded its authority in requiring CAISO's compliance with Order No. 745 because FERC did not find, either specifically or generically, that the cost allocation methodology it previously approved for CAISO's tariff had become unjust and unreasonable. FERC held in response that Order No. 745 was a generic rulemaking applicable to all ISOs/RTOs, and that specific findings concerning the justness and reasonableness of each independent system operator's demand response program were therefore unnecessary. Furthermore, FERC argued that Order No. 745 found existing cost allocation methods inadequate only to the extent that they failed to comply with the general guidelines in Order No. 745. FERC therefore expressly declined to make specific findings for each ISO/RTO, including CAISO.

On remand, the California Petitioners will have the option to withdraw this remaining issue, particularly in light of the limited scope of this issue contrasted with the breadth of the EPSA II decision. Absent a withdrawal, the D.C. Circuit will have the opportunity to determine whether it will decide the matter based only on the briefs already before it or it will allow additional briefing and arguments, and if so, whether those new briefs and arguments will be permitted from the California Petitioners and FERC only or also from any party that has intervened. The D.C. Circuit's ultimate decision on this open issue could have impacts beyond California if it is broadly construed to apply to any region's market operator that amended its Order No. 719 tariff provisions to comply with Order No. 745.

The Impact of EPSA II on Order No. 745 Compliance in Each Region

Order No. 745 directed each independent system operator to submit a compliance filing with the tariff changes needed to implement the compensation approach in Order No. 745 on or before July 22, 2011. An extension until August 19, 2011, was requested and granted in New England, the Midwest and New York.

ISO New England, PJM and Midwest ISO

In all three of these regional wholesale markets, tariff revisions were filed by the independent system operator in compliance with Order No. 745, and those revisions were accepted and made effective in 2012. In each region, the Electric Power Supply Association (EPSA) filed a petition with the D.C. Circuit appealing FERC's orders accepting the regional Order No. 745 compliance filings. In New England, EPSA's petition was filed jointly with the New England Power Generators Association, Inc. (NEPGA). Those petitions have been held in abeyance pending the outcome of the original appeals of Order No. 745, as described below, and the approved tariff changes remain in effect in all three regions.

Current Status in New England (Docket No. ER11-4336). ISO New England's (ISO-NE) proposed tariff changes that were filed in compliance with Order No. 745 became effective on June 1, 2012, and are currently in effect. ISO-NE proposed to implement the tariff changes in two phases and therefore filed one set of "Transition Period Rules" and a second set of "Full Integration Rules." The Transition Period Rules were implemented beginning June 1, 2012, and will remain in place until the Full Integration Rules become effective, which is currently set for June 1, 2018. ISO-NE is continuing to develop the Full Integration Rules through subsequent compliance filings. A number of parties, including EPSA and NEPGA, requested rehearing of FERC's initial order approving ISO-NE's compliance filing. EPSA and NEPGA questioned whether FERC erred in accepting ISO-NE's compliance filing, as the revised tariff would treat behind-the-meter generation as a demand response resource eligible to receive full LMP compensation. FERC denied all requests for rehearing, and EPSA and NEPGA have appealed those orders to the D.C. Circuit, as described below.

Current Status in PJM (Docket Nos. ER11-4106 and EL14-55). PJM submitted its initial Order No. 745 compliance filing in June 2011 and made additional compliance filings in 2012, pursuant to FERC's initial order in December 2011. PJM's tariff revisions became effective on April 1 and July 1, 2012, and remain in effect. In this docket, FERC also rejected rehearing requests from EPSA and the PSEG Companies that argued FERC erred in accepting PJM's proposal to treat behind-the-meter generation as DR-eligible for full LMP compensation.

In a separate complaint to FERC on May 23, 2014, the same day the D.C. Circuit issued its decision in EPSA I vacating Order No. 745, FirstEnergy filed a complaint against PJM requesting that FERC require (1) the "removal of all portions of the PJM Tariff allowing or requiring PJM to include demand response as suppliers to PJM's capacity markets" and (2) the results of the PJM capacity auction due to be released that same day be considered void and legally invalid with respect to any demand response resources. This complaint was pending before FERC until the Court reached its decision in EPSA II. Following EPSA II, FirstEnergy filed a notice of withdrawal of its complaint.

Current Status in Midwest ISO (Docket Nos. ER11-4337 and ER12-1266). In the Midwest ISO (MISO), the Order No. 745 tariff revisions that were submitted to comply with Order No. 745 became effective on July 12, 2012. MISO's initial proposed tariff revisions, submitted in August 2011, differentiated between demand response resources facilitated by behind-the-meter generation and other demand response resources, and they would have excluded the former from compensation. FERC issued an order in December 2011 accepting that filing in part, directing MISO to make an additional compliance filing and rejecting MISO's proposal regarding behind-the-meter generation as beyond the scope of Order No. 745. In January 2012, EPSA and others requested rehearing of the finding in FERC's December 2011 order, asking FERC to uphold MISO's initial proposal differentiating between compensation for the two types of DR. In March 2012, in a separate docket, MISO submitted its compliance filing pursuant to FERC's December 2011 order. In July 2012, FERC issued an order rejecting the rehearing requests, accepting MISO's March 2012 filing and directing MISO to make an additional compliance filing. In August 2012, MISO made its next compliance filing, which was accepted by FERC in May 2013, subject to another compliance filing, which MISO submitted in September 2013. MISO's September 2013 compliance filing remains pending before FERC.

Appeals to the D.C. Circuit [Case Nos. 12-1306 (ISO-NE), 12-1368 (PJM) and 12-1381 (MISO)] of Orders Accepting Individual RTO Order No. 745 Compliance Filings. EPSA (in New England, joined by NEPGA) filed petitions for review of FERC's orders accepting ISO-NE's, PJM's and MISO's Order No. 745 compliance filings, respectively, in the D.C. Circuit. 

In all three cases, the petitioners challenged FERC's orders requiring each independent system operator to compensate demand response resources supported by behind-the-meter generation at full LMP, in addition to raising the jurisdictional challenge that was reversed in EPSA II

These appeals are currently being held in abeyance by the D.C. Circuit. In each docket, the parties are under an obligation to file motions to govern future proceedings within 30 days of the issuance of the judgment in EPSA II. Once the Court issues its formal judgment, EPSA/NEPGA and FERC will be obligated to apprise the D.C. Circuit of their view of how the cases should proceed, if at all, in light of the EPSA II remand. The options are that the parties and FERC can agree that the appeals should be dismissed or the petitioners can decide to continue with their appeals in the wake of FERC's Order No. 745 having been upheld by the Supreme Court.   

Future Impacts in ISO-NE, PJM and MISO. The Order No. 745 tariff revisions in ISO-NE, PJM and MISO are currently in effect in each market region. These provisions will be left undisturbed if any of the related appeals are withdrawn or dismissed. However, in the event that the petitioners decide to continue their narrowed appeals, there is always the possibility that the D.C. Circuit could find in their favor – however remote the possibility.    

New York ISO

Current Status (Docket Nos. ER11-4338, EL13-74 and ER14-2006). The New York ISO's (NYISO) tariff revisions that were filed in compliance with Order No. 745 remain pending before FERC. NYISO submitted its initial compliance filing in August 2011, which was rejected in part by FERC in a May 2013 decision, and NYISO was directed to submit an additional compliance filing. In June 2013, demand response providers requested rehearing of FERC's finding in the May 2013 decision that Order No. 745 does not require RTOs/ISOs to compensate DR facilitated by behind-the-meter generation at full LMP. FERC issued a tolling order affording it additional time to consider the rehearing requests, and in August 2013, NYISO submitted its compliance filing. Both NYISO's compliance filing and the rehearing requests remain pending before FERC.

On the same day, demand response supporters requested rehearing of FERC's May 2013 compliance order and also filed a joint complaint in a new docket (EL13-74) seeking a FERC order requiring NYISO to file revisions to its tariff to allow DR facilitated by behind-the-meter generation to be compensated at full LMP. FERC issued an order on the complaint in November 2013 finding that (1) Order No. 745 neither requires nor precludes behind-the-meter generation from LMP compensation, and (2) in light of the record, NYISO's failure to revise its tariff to allow such participation constitutes undue discrimination. FERC directed NYISO to submit a compliance filing that would allow DR facilitated by behind-the-meter generation to participate in NYISO's DR program on a basis comparable with other DR resources. EPSA sought rehearing of the FERC order, which remains pending. In May 2014, NYISO submitted a filing in compliance with FERC's November 2013 order, which also remains pending.

Future Proceedings. The Court's decision in EPSA II did not address the issues that remain pending before FERC regarding NYISO's Order No. 745 compliance. Until FERC issues the rehearing order in this docket, the behind-the-meter issue in this proceeding remains unresolved. While not controlling in this particular proceeding, it is possible that FERC will wait until the D.C. Circuit resolves EPSA's pending appeals in the individual ISO-NE, PJM and MISO appellate proceedings, which it can do since it is not under a time constraint within which to act on a rehearing. 

California ISO

Current Status (Docket No. ER11-4100). The California ISO's proposed tariff changes in response to Order No. 745 became effective on July 18, 2013. CAISO submitted its initial compliance filing in July 2011, and in December 2011, FERC issued an order rejecting that filing in part and directing CAISO to make a subsequent compliance filing. In January 2012, CAISO requested rehearing, raising the same issues regarding Order No. 719 that it subsequently raised in its joint brief with the CPUC to the D.C. Circuit in EPSA I. CAISO submitted a compliance filing, as directed by FERC's December 2011 order, in March 2012. FERC denied CAISO's rehearing request on July 18, 2013, the same day it accepted CAISO's compliance filing.

Future Impacts. The CAISO tariff revisions have already taken effect, and no one sought rehearing of FERC's acceptance of the Order No. 745 compliance filing. The issue raised jointly by the California Petitioners in EPSA I will be resolved by the D.C. Circuit on remand from EPSA II, unless the parties choose to withdraw their outstanding appeal. By not seeking rehearing of the July 18, 2013 order on compliance, CAISO has waived its rights to appeal FERC's individual compliance filing orders, in contrast to its Order No. 745 rulemaking challenge. 

Southwest Power Pool: Current Status and Future Impacts (Docket No. ER11-4105)

The Southwest Power Pool's (SPP) proposed tariff changes in response to Order No. 745 became effective on December 20, 2013. No rehearing was sought of FERC's order accepting the compliance filing. Accordingly, SPP's Order No. 745 compliance efforts should be unaffected by any further D.C. Circuit action.

Footnote

1 Among other things, Order No. 719 required regional transmission operators (RTOs) and independent system operators (ISOs) to amend their tariffs to allow retail electric customers to bid demand response resources into their organized markets unless otherwise precluded by the relevant state regulatory authority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.