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Bench Report: Top Ten Legal Decisions of 2011

Fortnightly Magazine - November 2011

went to press, the EPA informed Fortnightly that it is working with petitioners on a new schedule, and “plans to announce its next steps shortly.”

Meanwhile, as the Supreme Court explained, if EPA should choose not to set emission limits, states or private parties may petition the agency to issue a rulemaking, with EPA’s response then at last reviewable in federal court. (No. 10-174, June 20, 2011, 131 S.Ct. 2527, 180 L.Ed.2d 435.)

3. Gigabucks for Negawatts

Demand response comes of age, earning full compensation in energy markets.

In a case that perhaps drew more scholarly interest than any other in recent memory, the FERC ruled last March in Order 745, Demand Response Compensation in Organized Wholesale Energy Markets , that a commitment not to buy electricity in wholesale markets run by regional transmission organizations (RTOs) should earn the same energy market clearing price as is paid to a generating plant that supplies it—provided, however, that the transaction earns net benefits— i.e., that the total cost for all consumers is lower if the RTO accepts the DR offer of conservation, rather than a supply offer from the generator or other comparable resource.

The decision marked a philosophical victory for commission Chairman Jon Wellinghoff, and the ultimate triumph for Amory Lovins, the godfather of demand response, who sparked a revolution a quarter-century ago with his groundbreaking work in the pages of this magazine (“Saving Gigabucks With Negawatts,” March 21, 1985, p. 24) .

Many industry economists and trade groups had argued that a market participant selling demand response avoids paying the purchase price of energy, and in reality sells no more than an option to buy, and thus should be paid only the clearing price minus the generation component (“G”) of the retail rate, or LMP – G.

As we noted last issue (“Yes We Have No Negawatts ,” October 2011) , a similar debate is now underway at FERC (Docket ER11-3322, filed April 7, 2011) involving the proper compensation when traders sell demand response into RTO capacity markets. (Docket No. RM10-17, Order No. 745, March 15, 2011, 134 FERC ¶61,187.)

4. A MOPR, Not a NOPR

Capacity ‘dumping’ into PJM’s RPM market sparks a swift—and perhaps overzealous—response from FERC.

When New Jersey enacted legislation designed to short-circuit—some would say “game”—PJM’s regional capacity market, known as the “Reliability Pricing Model,” or RPM, by sending out an RFP to solicit new generating resources to submit lowball bids into the market to drive down the clearing price, the FERC reacted strongly.

First, it OK’d a new bid floor—the minimum offer price rule, or “MOPR”—that would cover generating plants and other resources bidding into the RPM (demand, for instance), including power plants owned by load-serving utilities (LSE) choosing to “self-supply” their own capacity into the market to meet their installed capacity requirements. So far, so good.

But second, the FERC took a measure that many saw as overkill: it adopted a virtual before-the-fact prudence review by defining the new bid floor in terms of a unit-specific, cost-indexing benchmark that would be developed by PJM