What the Supreme Court Demand Response Decision Means for MISO

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If you are plugged into the energy world, you’ve heard by now about the U.S. Supreme Court’s ruling on FERC Order 745, which concludes that the Federal Energy Regulatory Commission (FERC) has the jurisdictional authority to regulate the participation of demand response (DR) resources in wholesale energy markets.

The upholding of FERC Order 745 firmly asserts that DR resources can participate in wholesale energy markets and get compensated on an equal footing with traditional generators.

In other words, a reduction in demand is as valuable to the grid as an increase in supply.

Pinpointing the significance of this ruling is no simple task; it depends on who you ask. The U.S. Energy Information Administration says the SCOTUS ruling is “expected to result in faster growth in demand response in the wholesale electricity markets.”1 However, the regulatory structures governing DR deployment vary widely across wholesale markets. Thus, the Supreme Court’s ruling will likely have a heterogeneous effect across independent system operators (ISOs)/regional transmission operators (RTOs), including the Midcontinent Independent System Operator (MISO). As the Great Plains Institute has worked to increase the utilization of DR in the Midwest since 2013, we look now at the future of DR in MISO in the context of the SCOTUS ruling and try to understand what its implications may be.

So, will this actually change anything in MISO?

The simple answer is: Not really. In the near term, the ruling provides some certainty around how participation of DR programs in wholesale markets will be regulated and compensated. Accordingly, MISO will continue to investigate, design, and implement market reforms to comply with FERC Order 745. However, the current open issues surrounding minimum capacity thresholds and aggregation, which prevent DR from fully participating in MISO’s Energy and Operating Reserve markets, will likely remain relatively low priorities in MISO’s stakeholder process.

There is a chance that the SCOTUS ruling could generate more interest from market participants to enter their DR programs into MISO’s markets knowing that the revenue stream is secure, which could in turn generate interest in reforming MISO’s markets further.

Still, DR programs in MISO’s territory are primarily governed by state PUCs who may restrict market participation if they do not see a benefit for their ratepayers. 

For example, Minnesota’s PUC may not want to allow Xcel Energy to bid a DR program into MISO’s market to relieve congestion on transmission lines for electricity delivery to customers in Michigan. In this hypothetical, the cost falls squarely on Minnesota ratepayers and the benefits flow to Michigan consumers.

Furthermore, MISO dispatches the majority of its DR only during emergency events, underutilizing DR resources, which suppresses the economic opportunity of market participation for DR program operators. Approximately 90% of MISO’s current DR capacity is registered as a Load Modifying Resource (LMR).2 LMRs are only available to be dispatched when MISO declares an emergency event, which it has not done since the North American Electric Reliability Council (NERC) began keeping records of such events in 2007. Restrictive dispatch rules for LMRs and restrictive registration requirements for other DR products (such as minimum MW size thresholds) limit the market opportunity for DR programs in MISO’s footprint.

A Reason for Optimism?

Broadly speaking, the ruling could create a foundation for the integration of a variety of distributed energy resources (DERs) into wholesale markets across the country. The Supreme Court’s justification for this ruling was that DR programs, which are a local level resource, impact wholesale energy prices in interstate markets. This interpretation sets the precedent that FERC can regulate resources which impact wholesale energy prices, regardless of their physical location. This precedent could have a future impact on how other distributed energy resources (DERs) such as distributed generation and energy storage resources can participate in wholesale energy markets.

For now, the immediate impact of the Supreme Court’s ruling will be much more pronounced in deregulated regions of the country. In deregulated states, where capacity markets truly drive investment, DR got a big win. In MISO, we will have to wait and see how utility and state interest in DR develops.

 

Learn more with our blog series on demand response here:

1. New Fact Sheet Series on Demand Reponse

2. The Environmental Benefits of Demand Response

3. Demand Response in a Resource Constrained World

4. Difference in Demand Response Markets

5. Map of Potential Demand Response in the U.S.