Supreme Court Upholds FERC’s Demand Response Rule

Posted on January 28, 2016 by Jessica Bell

On Monday, the Supreme Court issued its decision in Federal Energy Regulatory Commission v. Electric Power Supply Association.  In this case, the Court considered FERC’s demand response rule, Order No. 745, which requires a market operator to pay the same price to a demand response provider to conserve energy as it would pay a generator to produce energy.  Order No. 745 set the payment to be made for reducing energy usage at the locational marginal price (LMP) of energy, so long as FERC’s “net benefits test” is met.  For example, large individual consumers, such as a big store or manufacturer, may reduce their use of power and receive payment pursuant to Order No. 745.

The two primary objections to Order No. 745 were that: (1) it represents an intrusion by FERC into the retail market (a jurisdictional issue under the Federal Power Act), and (2) FERC’s decision that compensation at LMP was arbitrary and capricious. On the jurisdictional issue, the Court found that while FERC’s jurisdiction lies in wholesale markets, Order No. 745 regulates the activity of wholesale market operators and does not constitute a regulation of retail sales.  On the issue of the appropriate price, the Court found that the decision to pay demand response providers LMP is not arbitrary and capricious.  The Court found that FERC engaged in reasoned decisionmaking in selecting the compensation scheme in Order No. 745, stating that its “important but limited role is to ensure that the Commission . . . weighed competing views, selected a compensation formula with adequate support in the record, and intelligibly explained the reasons for making that choice.”

The Court reversed the D.C. Circuit’s May 2014 decision that vacated Order No. 745 in its entirety as “encroaching on the states’ exclusive jurisdiction to regulate the retail market.”

The decision was not unanimous, though, with Justice Scalia authoring a dissent, in which Justice Thomas joined.  The dissent believes that Order No. 745 is outside of FERC’s authority as an intrusion into the retail electricity market.  (Justice Alito did not participate.)

The case was argued on October 14, 2015. The recording of the argument and the briefs in the case provide more background.

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If at First You Don’t Succeed, Try, Try Again

Posted on January 27, 2016 by Anjali Patel

UPDATED 01.27.2016 PM with response deadline date.
UPDATED 02.01.2016 with additional applications.

Following on the heels of the D.C. Circuit’s denial to stay the CPP, twenty-nine states and state agencies are taking their fight to a higher power.  On January 26, the coalition filed an application for stay with Chief Justice Roberts, the allotted Justice for the D.C. Circuit Court of Appeals, alleging that a failure to stay will “impose massive and irreparable harms upon the sovereign States, as well as irreversible changes in the energy markets.”  In support of their application, Petitioners reference the Court’s remand of the Mercury and Air Toxics Standards (MATS) and the D.C. Circuit’s ensuing decision not to vacate the rule pending remand, claiming that because MATS has not been stayed during the years of litigation, EPA “extracted” compliance from power plants.  The docket number for the case is 15A773.

Petitioners bore a heavy burden in seeking a stay with the D.C. Circuit; the bar is even higher now.  The applicants must show that SCOTUS has authority to stay the CPP pending resolution of the D.C. Circuit’s decision on the merits of the case, and if jurisdiction is found, they must show that they meet the legal standard for a stay.  Applicants have forwarded two alternative jurisdictional bases for granting a stay: the Administrative Procedure Act (APA), 5 U.S.C. § 705, or alternatively, a writ of mandamus pursuant to the All Writs Act, 28 U.S.C. § 1651(a).

To obtain a stay under the APA, the applicants must show: (1) a reasonable probability that four Justices will consider the issue sufficiently meritorious to grant certiorari; (2) a fair prospect that a majority of the Court will vote to reverse an appellate court ruling upholding the statute below; and (3) a likelihood that irreparable harm will result from the denial of a stay.

To obtain a writ of mandamus, which is considered to be an extraordinary form of relief, the applicants must establish that: (1) the writ will be in aid of the Court’s appellate jurisdiction, (2) that exceptional circumstances warrant the exercise of the Court’s discretionary powers, and (3) that adequate relief cannot be obtained in any other form or from any other court; and they must further show a fair prospect that a majority of the U.S. Supreme Court will vote to grant mandamus and a likelihood that irreparable harm will result from the denial of a stay.

These are stringent legal standards; it is highly unlikely (though not impossible) that the application will be granted.

Given the number of motions for stay that were filed before the D.C. Circuit, additional “piggyback” applications may be filed by other parties.  Indeed, on January 27, 2016 additional applications were filed by 60 utilities and trade associations, docket number 15A776, four coal industry companies and associations, docket number 15A778, 16 business industry trade associations representing electricity, energy, industrial, manufacturing and commercial interests, docket number 15A787, and the State of North Dakota, docket number 15A793.

The DOJ/EPA has been asked to respond to the application by 3 PM EST on Feb. 4, 2016.  Chief Justice Roberts may decide on the application himself, or pursuant to Supreme Court Rules, may refer it to the entire Court.

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MISO Unveils Additional Results of CPP Near-Term Analysis

Posted on January 27, 2016 by Amber Martin

At its January 20, 2016, Planning Advisory Committee meeting, Midcontinent Independent System Operator, Inc. (MISO) released the latest results of its near-term Clean Power Plan analysis.  The results expand on MISO’s initial findings, unveiled in December 2015.

In its most recent round of modeling, MISO compares mass-based and rate-based compliance plans and assumes states adopt a trading-ready approach under each.  MISO did not consider or examine implications for transmission or gas infrastructure in this set of projections.

On the regional level, MISO found that mass-based compliance will be considerably cheaper than rate-based compliance, with rate-based production costs exceeding $16 billion in 2030, compared to production costs of approximately $5 billion under a mass-based plan.  Under a rate-based approach, MISO projects that the cost of emitting carbon dioxide could top $140 per short ton by 2030, compared to just $40 per short ton that same year under a mass-based approach.

Although it found that early compliance targets could be met through renewable portfolio standards and coal to gas re-dispatch, MISO notes that comprehensive planning is needed immediately in order to meet increasingly stringent compliance targets in the mid-2020s.  New, non-carbon-dioxide-emitting resources, MISO predicts, will be needed to keep carbon prices down over the long term.  Although modeling indicated that under a rate-based approach early deployment of renewable resources would drive down initial carbon prices, additional renewable build-out will be needed to sustain those savings. MISO’s findings also indicate that coal retirements will have a greater impact on carbon prices under mass-based compliance schemes.

MISO’s most recent analysis also took stock of the effect the CPP will have on coal-fired generation. According to MISO’s projections coal generation faces less risk of reduced dispatch under mass-based compliance plans, with coal units running more in the near term under rate-based compliance, and more in the long term under mass-based compliance.

Consistent with its timeline for analyzing the Clean Power Plan, MISO plans to present additional results of its near-term analysis at its February Planning Advisory Committee meeting.

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CPP Motions to Stay Denied

Posted on January 21, 2016 by Anjali Patel

Earlier today the D.C. Circuit issued an order denying petitioners’ motions to stay the Clean Power Plan and LG&E and KU Energy’s motion to sever certain issues and hold them in abeyance.

The court also set the consolidated appeals for expedited consideration.  While the Court left it up to the parties to submit a proposed briefing schedule, it mandated that all briefing be completed and the joint appendix filed by April 22, 2016.  Oral argument is set for June 2, 2016, but could extend into June 3.  Given that January is almost gone, this is a pretty tight schedule.

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FERC Adds Its Two Cents on Clean Power Plan Modeling

Posted on January 21, 2016 by Anjali Patel

On January 19, 2016, FERC staff issued a white paper entitled “Guidance Principles for Clean Power Plan Modeling,” in Docket No. AD16-14-000.  In the white paper, FERC staff recognizes that the “CPP assigns no direct role to the Commission,” but that the Commission “may be called upon” to address CPP-implementation related reliability concerns.  Accordingly, it provides four “guiding principles” to assist transmission planning entities (including RTOs/ISOs, utilities, and other stakeholders) and NERC and its regional reliability entities with performing robust analyses of the reliability impacts of the CPP.  A brief summary of each guiding principle is provided below:

Guiding Principle 1: Transparency and Stakeholder Engagement.
Entities conducting CPP modeling studies should be transparent about and incorporate early stakeholder engagement into the development of the models, model inputs, and study designs to help ensure that the studies are vigorous, and that assumptions used in the models are reasonable. Entities are also encouraged to “provide sufficient access to information” so that stakeholders and other third parties may easily replicate the results.

Guiding Principle 2: Study Methodology and Interactions Between Studies.
To better understand the various impacts the CPP may have on the electric grid,  studies should use multiple modeling tools, the results from one study should be incorporated into subsequent studies, and study methodologies should be continued to be refined.

Guiding Principle 3: Study Inputs, Sensitivities, and Probabilistic Analysis.
Studies should include a base case that “accurately reflect[s] the current and future state of the electric grid under business as usual conditions.”  Studies should also quantify the impact of uncertainties, and be based on inputs that account for a full range of probable outcomes.

Guiding Principle 4: Tools and Techniques.
Entities are encouraged to assess their current modeling capabilities, and, as necessary, develop new modeling tools to better analyze the “complex interactions between various decisions.”

The white paper appendix provides a description of various types of studies that may assist with CPP planning and implementation, including resource adequacy planning studies, production cost studies, integrated gas-electric systems simulations, powerflow and transient stability analyses, and frequency response studies.

The white paper is just the tip of the iceberg. FERC staff and/or the Commission may be contemplating further pronouncements on or involvement in CPP implementation.

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