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May 31, 2016
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Each month, electric bills arrive like clockwork.  For large commercial and industrial businesses, especially those that are energy-intensive, these electric bills can represent a sizeable portion of a business’s monthly expenses.   Given the broad revenue collection ability of regulated utilities, businesses continue to see their electric bills increase to fund things beyond just the supply and delivery of electricity.  Compliance costs associated with things like energy efficiency and renewable energy mandates, economic development, payment assistance programs, and many more programs are often baked into the “price” of electricity that appears on a business’s electric bill.  Such is the case for businesses in Ohio and Pennsylvania.

Given the pressure on large energy-intensive businesses to not only manage the true cost of the supply and delivery of the electricity they consume but also to fund these additional programs through their electric bills, large energy-intensive businesses are constantly searching out tools to help control the magnitude of their bills.  One such tool, that goes by many names, is demand response (other names include interruptible capabilities, load shedding, and active load management). 

Demand response represents the ability of a business to actively reduce the amount of electricity the business draws from the electric grid at specific times.  This typically occurs through the use of an on-site backup generator, shutting down or scaling back an energy-intensive business practice, or rescheduling an energy-intensive business practice to an off-peak time, typically the morning or evening.  Businesses with demand response capabilities can capitalize on those capabilities by avoiding certain costs and receiving compensation from both state and federal programs.

One significant challenge to the ability of businesses with demand response capabilities was recently resolved in favor of businesses. In February 2016, the United States Supreme Court, in F.E.R.C. v. Electric Power Supply Association (EPSA), upheld rules that provided compensation to businesses for committing their demand response capabilities to a regional grid operator.    

Still, vital questions remain unresolved by the Supreme Court’s EPSA decision.  First, will states block businesses from participating in the federal programs? As things currently stand, the Federal Energy Regulatory Commission (FERC) has authorized states to block businesses in their states from participating in the federal programs.  Having lost their fight in the federal courts, electricity generators may turn to the states in an effort to block businesses from participating in the wholesale markets regulated by FERC. 

Second, will FERC and the regional grid operators continue to rely on demand response resources?  While the Supreme Court has upheld FERC’s authority over demand response, PJM Interconnection (PJM), which is a regional transmission organization that serves 13 states, including Ohio, Pennsylvania and the District of Columbia, and other regional grid operators have taken and are taking actions to limit the scope of available federal demand response programs. 

Third, how much compensation can demand response participants expect? Currently, demand response resources are generally paid the same amount as generators.  And we are talking big money:  PJM paid over $800 million to demand response resources in 2015 (these payments included all types of demand response in PJM, not just the specific demand response program at issue in EPSA).  As the ink was still drying on the Supreme Court’s decision in EPSA, FERC Commissioner Tony Clark encouraged the conversation to turn to whether the compensation that businesses receive for their demand response capabilities should be reduced.  So the question endures:  will customers continue to receive the same compensation as generators? 

Getting help with energy costs

While the Supreme Court decision in EPSA is certainly good news for businesses, it is likely not the last word on the issue, and staying abreast of the varying state and federal electricity rates and programs applicable to businesses with demand response capabilities can be a daunting task.  McNees Wallace and Nurick’s Energy and Environmental Law Group frequently works with large energy consumers, state and federal regulators, and others in this dynamic area.

Matthew R. Pritchard practices in the Energy and Environmental Law Practice Group in the Columbus, Ohio office of McNees Wallace & Nurick LLC.  Joseph G. Bowser, a technical specialist in the Energy and Environmental Law Practice Group, assists clients of the firm with their participation in demand response programs. They can be reached at 614.469.8000 or mpritchard@mcneeslaw.com or jbowser@mcneeslaw.com

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McNees is a full-service law firm based in central Pennsylvania with more than 130 attorneys representing corporations, associations, institutions and individuals. The firm serves clients worldwide from offices in Harrisburg, Lancaster, State College and Scranton, PA; Columbus, OH; and Washington, D.C. McNees is also a member of the ALFA International Global Legal Network. @McNeeslaw | LinkedIn