Millions are at stake for New England electric customers. Demand Response (“DR”) Capacity Resource participation in New England’s February Forward Capacity Auction remains in question as New England market participants await FERC’s decision in New England Power Generators Association, Inc., v. ISO New England Inc. Pursuant to Section 206 of the Federal Power Act, the New England Power Generators Association, Inc. (“NEPGA”) filed a Complaint requesting that the Federal Energy Regulatory Commission (“FERC”) or the (“Commission”) “direct ISO New England Inc. (“ISO-NE”) to disqualify DR Capacity Resources from participating as supply in the Forward Capacity Auction (“FCA”) for the 2018/2019 Capacity Commitment Period (“FCA 9”) and to revise its Tariff to exclude such resources from participating as supply in the Forward Capacity Market (“FCM”) going forward.” NEPGA Complaint, Dkt. No. EL15-21, November 14, 2014.
A Section 206 claim is a formal adjudication where the complainant requests that FERC fix a rate or charge that is allegedly unjust, unreasonable, unduly discriminatory or preferential. NEPGA claims that the May 23, 2014 holding of the U.S. Court of Appeals for the District of Columbia Circuit (the “D.C. Circuit”) in Electric Power Supply Association (“EPSA”) v. FERC validates it’s Complaint and compels FERC to grant it’s requests. The crux of the Complaint relies on two arguments. First, that the EPSA decision applies with equal force to Demand Response participation in wholesale capacity markets as it does to Demand Response participation in the wholesale energy markets. Second, Demand Response Capacity Resources must be excluded from the FCM in light of their inability to fulfill their energy must-offer obligations.
Demand Response is defined under the Commission’s regulations 18 C.F.R. Sec. 35.28(b)(4) as a reduction in the consumption of electric energy by customers from their expected consumption in response to an increase in the price of electric energy or to incentivize payments designed to induce lower consumption of electric energy. There are two types of Demand Response, passive and active. Passive Demand Response is achieved through methods of energy efficiency, like the installation of light emitting diode light bulbs. Passive DR is designed to save electricity use at all times. Active Demand Response is achieved on a much larger scale. It is activated only when needed. For example, a large industrial complex that has back up generators that enable the complex to generate enough electricity to be self-sufficient, may commit to operate independent from the electric grid for a period of time. Significant power is saved when an entity is capable of Active Demand Response participation. Such participation decreases demand and transmission congestion. It also helps lower wholesale electric power prices, thus lowering retail electric prices, the electric rates consumers pay.
NEPGA is a trade association representing competitive electric generating companies in New England. It’s member companies represent approximately 26,000 megawatts (“MW”) of generating capacity in New England. Capacity is the continuous load-carrying ability of generation, transmission, or other electrical equipment. In other words, capacity represents the maximum electric power available. Member companies of NEPGA include: Brookfield Renewable Energy Group, Calpine Corps., Competitive Power Ventures, Dominion Resources, Emera Energy, Entergy, Equipower Resources Corps., Essential Power, Exelon, Granite Ridge Energy, GDF Suez North America, NextEra Energy Resources, NRG Energy, and PSEG Power.
Independent System Operator (“ISO”) New England is the independent, not-for-profit company authorized by the FERC to operate the interstate power system, administer the wholesale electricity markets, and perform power system planning for the New England States. ISO New England administers three categories of markets pertaining to the electric grid: (1) energy markets (both day-ahead and real-time), (2) capacity market, and (3) ancillary services. Energy markets allow for the purchase and sale of electric power. A capacity market is where generators receive compensation for investing in generation capacity. Load-serving entities, the market participants that secure electric energy, transmission service, and related services to serve the demand of their customers, make capacity payments to generators to ensure the long-term availability of sufficient generation capacity for the reliable operation of the bulk power grid. Ancillary services support and ensure short-term reliability of the power system.
The type of capacity market that ISO-New England administers is known as the Forward Capacity Market (“FCM”). Under the FCM, the ISO projects the needs of the power system three years in advance then holds an annual auction referred to as the Forward Capacity Auction (“FCA”) where load serving entities purchase power resources to satisfy the region’s future needs. The purpose of the FCM is to send appropriate price signals to attract new investment and maintain existing resources where and when they are needed, thus ensuring the reliability of the New England electricity grid. Aside from power plant generators, both active and passive demand response resources have been fully integrated into the FCM since June 1, 2010. Again, the auction is held for capacity commitments projected three years into the future. The capacity commitment period is a one year period from June 1 through May 31; therefore, this coming auction is for the 2018/2019 Capacity Commitment Period. The February 2, 2015 FCA is the ninth annual capacity auction and is being referred to as FCA 9. Months prior to the FCA, the ISO files a proposed Installed Capacity Requirement (“ICR”) with the FERC, which is used to determine how much capacity the ISO will procure in the FCM through the auction process.
NEPGA is relying on the result of the EPSA case and how the D.C. Circuit treated FERC Order 745 to succeed under its Complant. In 2011, the Commission issued Order 745, which established a uniform compensation structure for Demand Response Resources participating in the day-ahead and real-time wholesale energy markets. In EPSA, the D.C. Circuit vacated FERC Order 745 on two grounds: (1) it found that FERC had no authority under the Federal Power Act (“FPA”) to issue the order because it impermissibly regulated retail rates, an area subject to states’ exclusive control pursuant to FPA Section 201; and (2) the court determined that even if FERC was not statutorily precluded under Section 201 from issuing Order No. 745, that its final rule was still impermissible because the Commission failed to engage in reasoned decision-making by not addressing arguments against the rule. In separate rulings issued on September 17, 2014, the D.C. Circuit denied the Commission’s petition for rehearing en banc and other such petitions filed by several parties to the proceeding. Pursuant to an October 20, 2014 per curium order, the D.C. Circuit granted the Commission’s request to withhold issuance of the mandate until at least December 16, 2014. The Obama Administration has expressed an interest in filing a petition for writ of certiorari, appealing the D.C. Circuit’s ruling in EPSA to the United States Supreme Court; therefore, the Office of the Solicitor General moved to have the D.C. Circuit extend it’s deadline until January 15, 2015, which the court granted. On January 15th, FERC filed a petition for a writ of certiorari in EPSA seeking to overturn the D.C. Circuit’s decision.
In the underlying matter, ISO-New England fired back on December 4, 2014 with its Answer to NEPGA’s FPA Section 206 Complaint. The ISO is relying on four major arguments to counter NEPGA’s complaint.
(1) The ISO claims that FERC has no requirement to take preemptive action to implement EPSA because the matter has been stayed by the D.C. Circuit, while FERC pursues an appeal before the U.S. Supreme Court. “Until the stay is lifted or a Supreme Court ruling on the merits is issued, the question of how to deal with the potential vacatur of Order No. 745 is not yet ripe for action.”
(2) Next, the ISO argues that EPSA does not address the Commission’s jurisdiction over Demand Response participation in the wholesale capacity markets. ISO-New England claims that the holding of EPSA is limited to Demand Response participation in the wholesale energy markets.
(3) Furthermore, the EPSA decision has the effect of stripping FERC of its jurisdiction over Demand Response participation in the wholesale energy markets; however, ISO-New England argues that “capacity is distinct from energy”, citing to Connecticut Department of Public Utility Control v. FERC, 569 F.3d 477, 479 (D.C. Cir. 2009), where the court explains that capacity “is not electricity itself but the ability to produce it when necessary. It amounts to a kind of call option that electricity transmitters purchase from parties, generally generators, who can either produce more or consume less when required.”
(4) The last and most critical argument that ISO-New England sets forth is that if NEPGA’s Complaint is successful, it would serve to eliminate Demand Response Resource participation from FCA 9, thus causing a massive drop of capacity resource supply. Electric power generation entities would serve as the only eligible capacity suppliers in the auction, thus causing auction prices to sky rocket because of the sudden short supply of resources. “By reducing supply on the eve of the auction, without an opportunity for the market to react and without considering appropriate adjustments to the demand side of the market, NEPGA’s proposal would simply raise prices to unreasonable levels that would not reflect overall market conditions.”
On November 26th, the New England Power Pool Participant’s Committee (“NEPOOL”) filed Comments on the proceeding. NEPOOL is a voluntary association of more than 430 members, including electric utilities rendering or receiving services under the ISO-New England Tariff, as well as independent power generators, marketers, load aggregators, brokers, consumer-owned utility systems, demand response providers, developers, end users and a merchant transmission provider. “The Participants Committee is the governing body of NEPOOL, which considers and acts on all matters affecting the New England region’s wholesale electric power arrangements, either directly or by delegation.” NEPOOL is the principal energy stakeholder organization for New England. FERC recognizes NEPOOL’s critical role in energy management and governance in New England. The NEPOOL Participants Committee has a Commission approved process for recommending changes to ISO-New England’s Tariff. NEPOOL works closely with ISO-New England to ensure that the wholesale energy and capacity markets are working as intended, that the power system is reliable, and that power prices remain affordable to market participants, and thus, the public.
In NEPOOL’s Comments, it urges the Commission to deny the Complaint and to direct NEPGA to utilize NEPOOL’s Participants Committee Process to initiate changes to the ISO-New England Tariff. NEPOOL has consistently opposed any changes to the ISO-New England Tariff that are sought without first having those changes proposed within the NEPOOL Participants Process. Importantly, NEPOOL claims that the ICR value needs to be adjusted if Demand Response Resources are not allowed to participate in FCA 9. Currently, the ICR value presumes DR Resource participation in the auction. NEPOOL argues that this issue has not been identified by NEPGA, let alone studied or discussed. Finally, NEPOOL requests that for these reasons the Commission reject the NEPGA Complaint.
On December 4th, the New England States Committee on Electricity (“NESCOE”) filed a Motion to Intervene and Protest NEPGA’s Complaint. NESCOE describes itself as a not-for-profit organization representing the collective interests of the six New England States on regional electricity matters. “It is directed by Managers appointed by the six New England Governors and advances policies to provide electricity at the lowest possible price over the long term, while maintaining reliable electric service and environmental quality.” NESCOE raises several arguments opposing the NEPGA Complaint. Some are similar and duplicative to the arguments previously mentioned by ISO-New England. An issue that NESCOE seems to stress heavily is that NEPGA has not met its burden of proof under Section 206 of the Federal Power Act. NESCOE argues that “NEPGA bears a dual burden in bringing [the] Complaint. First, it must demonstrate that the existing rate, rule, or practice is ‘unjust and unreasonable, unduly discriminatory or preferential.’ Then NEPGA must show that its proposed alternative is just and reasonable.” NESCOE claims that NEPGA has failed to meet both of these requirements, and therefore, its Complaint should fail.
NEPGA refuted the burden of proof argument in a reply Answer, filed on December 19th. Only one leg of the dual burden of proof that NESCOE references is codifed in Section 206 of the FPA. The first threshold, that a complainant mush show is that an existing rate, rule, or practice is “unjust and unreasonable, unduly discriminatory or preferential” is codified in Section 206. However, the second leg, that NEPGA must prove that its proposed changes are just and reasonable is not in Section 206. NESCOE is relying on the language of Blumenthal v. FERC, 552 F.3d 875 (2009) (“Blumenthal”), a point of law that has since been overturned in Maryland Public Service Com’n v. FERC, 632 F.3d 1283 (2011) and FirstEnergy Service Co. v. FERC, 758 F.3d 346 (2014) (“FirstEnergy”). FirstEnergy explicitly overturns the burden provision in Blumenthal stating that “[i]t is the Federal Energy Regulatory Commission’s job, and not that of an electric utility challenging a rate, to find a just and reasonable rate.”
Despite shooting holes through the burden of proof argument raised against it, NEPGA’s chances of success on its Complaint seem very low. As reported by RTOinsider.com FERC approved ISO-New England and NEPOOL’s proposed rule changes to the New England Tariff, so that the region is in compliance with FERC Order 745. The same Order that the D.C. Circuit has overturned in EPSA. FERC has accepted the revisions to ISO-New England’s Tariff, which integrates Demand Response Resources into the wholesale energy markets and reserve markets. NEPGA filed Comments in that proceeding, echoing the arguments made in their Complaint discussed here. FERC admonished such arguments, stating that their place is in this docket. The Commission is yet to rule on the merits of NEPGA’s Complaint. However, if the Commission is allowing Demand Response Resource integration, spitefully, ignoring the D.C. Circuit’s decision until the agency has had its Petition heard by the U.S. Supreme Court, then NEPGA’s chances of having DR Resources excluded from participation in FCA 9 are not great at all. New England ratepayers can breath a sigh of relief. Once FERC issues its decision in this docket, the Demand Response battle ground will turn to the U.S. Supreme Court.