Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission, did not mince words when talking about the potential outcome if the U.S. Supreme Court decides to review FERC Order 745, which was vacated last May by a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit.
“If the Supreme Court takes this case, we’re going to win,” he said during a webinar hosted by the Advanced Energy Economy, an association of businesses that support clean energy. “We will win this hands down.”
The ruling was a hit to economic demand response, but that’s a small portion of the overall market, which is mostly driven by demand response being called upon in capacity markets, when electric power generation is strained.
The issue, however, is that the ruling called into question FERC’s authority to regulate demand response as a product of wholesale markets -- a decision that has far-reaching implications.
Wellinghoff disagrees with the premise of the court’s majority argument. “If you look at the facts,” he said, “there’s no question it’s in essence wholesale in nature and not retail.”
Wellinghoff didn’t paint a rosy picture of what the decision could mean for other behind-the-meter assets that are currently being bid into some capacity and ancillary services markets, including energy efficiency, storage and distributed generation.
“If you use the majority logic here, all of that could be destroyed,” he asserted.
If the court does not choose to take up this issue, the generators that initially brought the lawsuit “may be the short-term winners, but they could be the long-term losers,” he said.
Wellinghoff hypothesized that FERC could decide to re-examine the wholesale markets and decide they’re unreasonable without products such as demand response. FERC could consider a return to cost-based energy regulation instead of the current market-based structure. In a cost-based paradigm, he argued, traditional generators might lose out even more than they have been in markets where efficiency and renewables are shutting down aging fossil fuel and nuclear plants.
He also noted that if FERC does not have the jurisdiction to regulate demand response, and the issue does go back to the states, it could be a dangerous gamble.
In such a scenario, Wellinghoff said, an entity could aggregate and manipulate demand response in ways that could cause the wholesale markets to be impacted, yet FERC wouldn’t have the jurisdiction to reach in and stop it. “That’s just a ridiculous result” of this ruling, he said. “You can’t have a product in the market with no enforcement. That makes no sense.”
But states aren’t clamoring for control. Nearly all states support FERC having jurisdiction of this issue. Even though some states strongly support demand response, the ones that have had the most success participate in wholesale markets.
States that aren’t in organized wholesale markets, such as those in the Southeast, simply do not see the level of savings or level of participation in demand response that those in wholesale markets do.
“We can’t duplicate success with existing state programs,” Wellinghoff said.
One path forward could be the creation of an independent distribution operator with a market at the distribution level. Even if the decision is overturned, Wellinghoff urged that those markets should be created. “It’s a model they need to go to anyway,” he said. “It will provide for even more products [being allowed] into the market.”
So far, New York is the only state heading in that direction.