Eric Wallace covers the Notice of Proposed Rulemaking (NOPR) sent by Secretary of Energy Rick Perry to the Federal Energy Regulatory Commission (FERC) in regard to grid resiliency.
The Federal Energy Regulatory Commission (“FERC”) recently authorized Apple to sell electricity in wholesale markets by approving the company’s request for “market-based rate authority.” FERC’s approval means that Apple will be able to sell excess power generated at its renewable facilities, including large solar installations in Arizona, Nevada, and California. Apple also recently entered into a long-term power purchase agreement with First Solar, Inc., to purchase the output from a 130 MW solar facility near San Francisco for approximately $850 million over 25 years. FERC’s order authorizes Apple to sell its excess electricity in several wholesale markets across the country, but not directly to retail customers. FERC reviewed Apple’s request and found that the technology giant’s entry into wholesale energy markets would not result undue market power, affect pricing, or suppress competition.
Apple’s plan to become a seller – instead of simply a user and owner – of renewable energy is consistent with the company’s stated goal of installing 4 gigawatts of renewable energy around the world by 2020. The company’s website also claims that 93% Apple’s data centers and manufacturing operations are currently powered by renewable energy resources.
Apple’s entry into the wholesale energy market is part of a trend among large tech companies to operate as sellers and developers – and not merely end users – of renewable energy. Companies like Google, Facebook, and Amazon have invested billions of dollars in recent years to develop renewable energy facilities in the U.S. and abroad. Google, for example, is currently purchasing the output from over 2 gigawatts of renewable energy and received market-based rate authority from FERC in 2010. As large U.S. corporations acquire energy facilities and increase their long-term renewable purchases, it seems likely that many companies, like Apple and Google, will seek to sell excess generation in wholesale markets.
On January 25th, the Supreme Court issued a landmark decision for the electricity industry, and particularly for demand response providers, settling considerable unease and speculation as to the future of the demand response industry. The term “demand response” generally refers to programs allowing individual customers or groups of electricity customers to curtail their energy usage during times of peak demand, and receive a payment for such reductions. The Supreme Court explained demand response as follows: “wholesale market operators can sometimes—say, on a muggy August day—offer electricity both more cheaply and more reliably by paying users to dial down their consumption than by paying power plants to ramp up their production.”
The 6-2 decision in Federal Energy Regulatory Commission v. Electric Power Supply Association et al., with Justice Scalia joined by Justice Thomas dissenting, upheld the Federal Energy Regulatory Commission’s (“FERC”) Order 745, which sets the rules for demand response pricing. Order 745 requires that demand response be compensated at the full price paid to power generators – the locational marginal price (“LMP”). The Supreme Court’s decision overruled a decision by the Court of Appeals for the District of Columbia Circuit that: (1) FERC lacked authority to issue Order 745 because the Order regulates the retail market; and (2) alternatively, Order 745’s compensation scheme, paying full LMP for demand response, is arbitrary and capricious under the Administrative Procedure Act. The D.C. Circuit’s decision was overruled on both counts.
The threshold issue was whether FERC has jurisdiction to regulate demand response compensation. On that issue, the Supreme Court found that FERC’s regulation of demand response compensation is consistent with its authority to regulate wholesale market rates. FERC’s demand response compensation scheme is exclusively directed at the wholesale market. Any natural consequences of such wholesale market regulation at the retail level do not render the regulatory scheme unlawful as exceeding FERC’s jurisdiction. As the Supreme Court explained, “every aspect of FERC’s regulatory plan happens exclusively on the wholesale market and governs exclusively that market’s rules.” Moreover, FERC’s demand response compensation scheme is consistent with the Federal Power Act’s “core purposes of protecting ‘against excessive prices’ and ensuring effective transmission of electric power.”
The Supreme Court also rejected arguments that Order 745 overcompensated demand response by setting compensation for demand response at LMP. The alternative pricing methodology, supported by Order 745 opponents, would deduct the savings customers would receive from not using power from the LMP (the LMP-G (generation) formula). Instead, Order 745 will remain in effect, and demand response will continue to be compensated at the full LMP, where demand response offers satisfy FERC’s “net benefits” test, ensuring that accepted demand response offers will save consumers money.
This decision paves the way for continued investment in demand response programs, promoting system reliability and lower electricity prices by allowing demand response to offset higher-cost generators that would otherwise raise wholesale market prices. The long-awaited decision is critical to the future of demand response. As a member of the Advanced Energy Management Alliance (“AEMA”), GreeneHurlocker shares the enthusiasm of its demand response clients and the AEMA on this decision. (A copy of the AEMA’s press release is attached here.)
Just Announced – On Tuesday, September 2, 2014, Dominion announced a joint venture with Duke Energy, Piedmont Natural Gas and AGL Resources to build a $5 billion natural gas pipeline that would stretch from West Virginia through southwest Virginia down to southern North Carolina. The proposed Atlantic Coast Pipeline would carry up to 1.5 billion cubic feet of natural gas per day, a tremendous throughput. Pending regulatory approvals from both FERC and state regulators, construction of the pipeline could begin in mid-2016, going into service as early as late 2018.
This project comes on the heels of EQT Corp. and NextEra Energy’s announcement in June 2014 that they plan to construct a 330-mile Mountain Valley Pipeline from West Virginia into southern Virginia. The Mountain Valley Pipeline, pending regulatory approvals, is expected to be put into service sometime during the fourth quarter of 2018 and would provide at least 2 billion cubic feet of natural gas transmission capacity.
The Atlantic Coast Pipeline and Mountain Valley Pipeline would deliver natural gas to growing markets in Virginia and beyond, and would provide direct access to natural gas flowing from the Marcellus and Utica gas shale basins in West Virginia, Pennsylvania, and Ohio.
GreeneHurlocker works with many clients operating in areas that may be impacted by the construction and operation of the proposed pipeline. Please contact one of our energy lawyers if you have questions about the regulatory approvals or any other issues relating to this new pipeline.