US Court Ruling Undermines the Value of Demand Response

DC Circuit Court of Appeals’ ruling on demand response means bad news for the consumer, efficiency and the environment.
Published: Tue 28 Oct 2014

The Federal Energy Regulatory Commission’s (FERC) regulation on demand response received a major blow by the recent D.C. Circuit Court of Appeals which declined en banc review of FERC Order 745.

Demand response savings hang in the balance

The decision, made last month, could see an unnecessary increase in electricity tariffs and an unwelcome development of new polluting power plants.

FERC Order 745, issued in 2011 by the federal agency which regulates electricity throughout the US, allowed demand response to compete fairly in the electricity marketplace with more traditional energy resources like coal and natural gas.

The inclusion of demand response in the wholesale energy market created a level playing field for the resource. By giving a clean energy resource equal footing with traditional sources of power, FERC was allowing an additional option into the marketplace. More options usually result in more competition and more competition generally results in lower costs to the consumer.

In 2013 alone, demand response saved consumers in the mid-Atlantic region US$11.8 billion. But now it appears that these savings are in jeopardy. By declining en banc review of the Order, the court has said, in essence, that demand response can no longer participate on equal footing in the marketplace.

This decision is likely to stand in the way of lower electricity bills and cleaner energy.

Business models must adapt to new regulation

Without Order 745, the market will still grow at an annual rate of 4.9% on average, reaching US$2.2 billion in 2023. If the order is reinstated, GTM Research forecasts the market to grow at nearly 8% per year, reaching US$2.9 billion in 2023. The cumulative difference between these two outcomes is US$4.4 billion in unrealized revenue. This is according to the latest report from GTM Research, U.S. Demand Response Markets Outlook 2014.

“Business models will have to adapt to the recent regulatory overhaul,” said report co-author Geoff Wyatt. “With more policy decisions being made at the state level, the fragmentation of the demand response market will only be exacerbated.”

The report cites technology innovation as a key way for vendors to stay relevant in the rapidly evolving market.

"The way we think about demand response is fundamentally shifting,” said report co-author Mei Shibata. “The adoption of new DR technologies and distributed energy resources is creating unprecedented opportunities – as well as uncertainties – around demand optimization.”

The report notes that the next decade of the US demand response marketplace will be more “dynamic than the previous 30 years” combined. “There will be big winners and losers in the DR market over the next ten years,” added Wyatt.

GTM Research expects the US demand response market to reach US$1.4 billion by the end of 2014.

Demand response competing on an unequal footing

The court’s ruling has caused a significant amount of uncertainty around the future of demand response. This will obviously have a major impact on consumers’ bills, grid stability and the environment.

Demand response has been helping lower energy prices and incentivizing energy conservation as an additional option in the marketplace. Now that demand response could be inhibited in the marketplace, it will be forced to compete on an unequal footing.

Latest Update

On October 20, 2014, the D.C. Circuit granted FERC’s motion to stay issuance of the mandate in the consolidated cases regarding Order No. 745, pending FERC and the Solicitor General’s consideration of whether to file a petition for writ of certiorari with the Supreme Court. The D.C. Circuit stated that it will withhold issuance of the mandate in these cases until December 16, 2014, which constitutes the 90-day maximum allowable stay period under the Federal Rules of Appellate Procedure and D.C. Circuit Rules.

The court denied the motion to stay filed by various intervenors, including the Coalition of MISO Transmission Customers, PJM Industrial Customer Coalition, EnerNOC, Inc., Viridity Energy, Inc., American Forest & Paper Association, EnergyConnect, Inc., Wal-Mart Stores, Inc., and Steel Producers. The order notes that Judge Edwards would have granted the intervenors’ motion.

Further reading

GTM Research- U.S. Demand Response Markets Outlook 2014