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How Electricity Markets Could be Upended By This Supreme Court Decision
Submitted by Leonard Hyman via OilPrice.com,
The Supreme Court may shortly decide an obscure case entitled Federal Energy Regulatory Commission v. Electric Power Supply Association (FERC v EPSA). The issue before the court is whether FERC can compel regional power markets to pay consumers who reduce their electricity usage at critical peak periods. And if so, at what price? Consumers have adopted a panoply of energy saving technologies known collectively as Demand Response (DR).
Demand-responders argue that a megawatt saved is financially equal to a megawatt produced by a power generator. The power generators who comprise EPSA recognize that DR will hurt them, reducing both power prices and their profitability, to the benefit of consumers. Adding DR to a power market is the competitive equivalent of adding more generators. Either way, added competition lowers prices.
If our pro-business Supreme Court rules in favor of EPSA and the power generators, electricity prices could rise tens of billions of dollars. More electricity generated by fossil-fueled power stations will produce more pollution.
High power prices might even tempt generators to build more fossil-fueled power stations at considerable cost. Plants that could soon be rendered economically irrelevant by weak demand for power and loss of market share to renewable energy competitors. And lastly, taking DR out of the market might increase the fragility of our electrical network because DR technologies reduce power demand on the grid precisely at those moments when system resources are the most stretched.
However, even if EPSA and the generators prevail in this case, they will win a Pyrrhic victory. They will raise electricity prices to be sure. But consumers may respond rationally by using still less energy (weak demand is already a major problem for the generators). If this happens, power companies may try to raise prices even further to cover their considerable fixed costs. This self-annihilating business model, continued price increases for a shrinking pool of customers and usage, is called the "death spiral" in the electricity business.
New technologies always hurt and sometimes destroy the incumbent business. Digital photography was not kind to Kodak, Polaroid or their shareholders. But it comes as no surprise when businesses facing a steep decline try to squeeze some residual value from an old product line and its unsuspecting, captive customers. But, for large power users such as retail shopping malls, supermarket chains and steel mills, DR offers the benefit of a dramatic decline in power costs. For power generators the opposite is true. As DR is adopted throughout their systems revenues and profits will inevitably nosedive.
With one change, DR has the potential to deliver a knockout blow to conventional generators and utilities. Right now DR is a passive, collective response to high power prices. Appliances across the grid, linked by the Internet, are programmed to, "Just say no" to high power prices albeit typically for brief periods. But we are now seeing a dramatic surge in interest in large, battery storage devices like Tesla’s powerwall. Those batteries permit before mentioned passive electricity consumers to become power sellers instead if the price is right. Hundreds of these devices, linked by software, are the equivalent of an electric power plant. Except the consumer who owns a storage battery, instead of paying high power prices would receive them instead. Over the long term, this feat of technological and economic jiu jitsu may wield a crushing blow to the power industry. This isn't the "death spiral" it's the Death Star.
Owners of large electricity generating plants may have made bad business decisions. Or they may be suffering from a confluence of unfortunate circumstances. In the uncertain business world stuff happens. For sure, though, they did not anticipate that growth in demand for electricity would approach zero. That natural gas prices would continue to decline as we approach winter is another, although perhaps temporary, negative surprise. Unfortunately for them, natural gas sets the price for electricity in many power markets. But the biggest surprise has been the emergence of thousands of "smart", internet-connected devices all acting in concert in real time. This permits electricity consumers to respond to daily power price fluctuations the way they do in all other markets.
The Supreme Court may see this is as a case about federal overreach and states' rights. But it is really the first of many attempts to answer four questions. Who decides what price consumers should pay for electricity? Are energy conservation and carbon emission reduction worthwhile societal goals? Should a novel form of competition be permitted to lower prices and profitability for EPSA and the power generators? And lastly, how quickly should new energy resources replace old ones?
This court decision may affect the pace of change within the power generation industry but not its direction. New technologies will do that. And DR looks like the technology to watch.
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Nothing like getting government involved in the market. Especially if you hate the market.......
we have reached "peak electricity"
Long torches and pitchforks. Note: not one Watt was used in this protest.
sarc off//
Whichever way would be worse off for us gutter trash proles, will likely be the way the USSC rules...
Solution is to drop the idea of power generation as being a utility. Rather power DELIVERY is the utility. Let anyone pay for access to the grid if they want it, whether as producers or consumers or both. Owners of the grid or grids (competition is good) are responsible for keeping up the maintenence of the power delivery systems. Easy peasy.
Drop all government protected coercive monopolies/oligoppolies. Let the free market sort it out.
I'm confident that whatever the wrong decision is, the Supreme Court will take it.
Don't be so sure, they also have a talent for disastrously bad decisions.
DR is a) waaaaaay more expensive than a MWh produced b)can bid in capacity markets Usually when DR is called on, LMP's are above $500/MWh.
What a load of crap. According to this article government punishing people for not using electricity when they want = more competition = good for everyone, while not punishing people = unfair = evil companies making more profit = bad. Those are some pretty fucked up assumptions.
One thing you can count on is air conditioners running in TX at 5 PM on a summer day. 60,000 Megawats of them.
It's only a matter of time before Smart Meters are mandatory and your power can be turned off in the middle of the summer if your beliefs are deemed 'incorrect.'
Duke Energy tried to bait me with a programmable thermostat which can be accessed via smart phone to " better control" your energy usage.
In the fine print, it clearly states, Duke may regulate your air conditioner usage during peak periods.
Yep, the sheep who down voted me (and I don't care) above just doesn't see that they're moving toward TOTAL CONTROL of every aspect of our lives.
Medical (getting closer to single payer), Financial (war on cash), Power ('Smart' metering), Communications (constant monitoring via smartphones and internet)
Unless something changes, this country will become nothing more than a technologically-enabled prison in the very near future.
Whoops, I see you are on a list. Noelectricity for you! You might use it to run a metal shop and produce a gun!
Whatever the court decides, your electric bill is going to go up. You can take that to the bank.
yep - just another tax in the Fascist States of Amerika
Not so sure it will go up as a result of DR like the author explained. Once enough consumers become part of that market they will have to compete with each other selling electricity back. Of course whoever sells first effects the price in a downward direction. As more sellers enter the market the price never gets "up" as high as it might have.
Eventually the market between consumers becomes competative and the price never rises as much since they all want to sell thier stored electricity. What hppens when there is a glut of that stored juice or the cost to store it is more than the profit from selling it. I see this as a short term problem soon overcome by the "FREE' market system. Hope the court sees the light and competitive advantage of keeping out of the markets.
And I just installed all of those LED bulbs...
there's doubt? really? USA is now fascist. Big Electricity will win.
We installed PV panels and a bi-directional meter. Since then the average utility bill is about $2.50 per month, which is the admin charge. We have about a 2 month kwh supply credit balance.
Same here - installed 6.5 kw solar plant, cut monthly bill to $20 in the winter;
5 years on, have had 1 failure, replaced under warranty. $olar i$ Great.
Our meter went bad after about a year - but we didn't lose power.
Nobody uses power during peak usage anymore, it's too expensive.
So what you are saying is I should let everyone else make the investment in a Tesla wall to eliminate peak power prices and then I won't have to pay peak prices or the Tesla Wall investment?
yeah but you may be the last customer paying the entire grid costs.
PJM was ~600MWh's (which is a small output plant) from rolling blackouts during Jan 7th 2014. When power goes out in the summer, you grill. In -7 degrees, you die.
Well a utility generates my power and delivers it to me, but I don't pay them. I pay some company that exists as nothing more than a PO Box because somebody thought it would be a good idea to let thousands of "energy" companies bid for the right to sell me my electricity even though they don't generate, deliver, or service it.
My outhouse uses no electricity ever, Pay Me Bitches
I walked to the mailbox instead of driving, Pay Me Bitches
I didn't supersize my meal, Pay Me Bitches
Honest to God I don't know what is up and what is down anymore
the most egrgious rules are local. many areas are beginning to outlaw total offgrid living where electrical power is available so you will have to pay the ever increasing grid tie fee. in hawaii, where solar/altenrgy makes economic sense without the subsidies at about 43 cents/kw, the local utility just raised the rates for solar system grid ties because of the lost revenue from solar energy.
My damn grid-tie fee has risen steadily for years now to $33 a month, just to have access to electricity. That's robbery, and a sign of things to come.
With the falling diesel prices, running my standby generator will be accumulating more run time, if this shit comes to pass.
I just wished I'd have bought 2 more of those excellent chinese single cylinder liquid cooled diesel engines before the EPA outlawed them.
https://sites.google.com/site/martinnile/
Residential usage isn't squat in comparison to industrial usage. The producers aren't concerned about DR cutting into demand. They're posturing to replace usage that isn't coming back. Ever.
Steel and Aluminum production facilities have power service that looks like the long distance HV wires in the pics. The consumption is incredible. How much steel and aluminum is being produced in North America? That's just an example.
The loss of industry, manufacturing, and to an extent agriculture (at least in California. Those ag pumps are power-hungry)are the concerns of the power companies. Residential with Demand Reduction, and even renewable sources aren't a threat.
Building Stuff requires power. And we don't build shit in this country any longer. That's what they're concerned about.
This needs to be stated in the context of the capacity market construct in PJM, MISO, NYISO, and NEPOOL. Basically, they created a pricing mechanism for a generator to be paid for having capacity available during the times when needed. The DR providers are arguing they're providing virtual capacity by being able to respond during those times. They want the capacity payment on par with someone who has steel in the ground to offer it.
The problem with capacity, and the gen co operators haven't come around on this yet, is that it puts all resources (DR or otherwise) on equal footing. That's not how a market otherwise clears. Generally, your most capable producers and consumers clear the markets before the more marginal ones do. So now the coal generator who is barely break even is on equal footing for capacity payments as the nuke plant. But why? Because you have a one time auction for it.
ERCOT and Alberta do not have capacity markets. They clear just fine. And the marginal generator takes big risks waiting for price spikes. But they're rewarded for the approach when it hits. What the capacity market has done is delay the shutting down of marginal plants by years. It allowed them to pull forward revenues that they otherwise wouldn't have gotten in an energy-only construct.
Now that energy prices are down, they will shut down. But this should have been done in 2009-2012. This DR decision by the US SC is just deciding if they get paid like plants. It's not going to change the fundamental supply and demand picture across these markets. There's still a lot of supply and not a lot of demand.
Purchase generator. Plug in natural gas line. Shut off connector to power grid.
Obama, EPA, EPSA, etc, all of you can now go fuck yourself.
Go for it. Cut the cord. But you do know that NG generator won't run very long before some maintenance will be required.
You handy with tools and small engine repairs? Able to replace bearings or a crankshaft and have a good store of replacement parts stocked up?
One last question:
Are you ready to deal with angry neighbors who are extremely pissed at you because that fucking loud generator is running all night and day in the wintertime?
As a former utility worker I see this from a different angle.
The "evil" power companies have a huge, expensive, labor intensive infrastructure to maintain and build. What happens when the next Hurricane Sandy hits and there aren't enough linemen and materials (pole, wires, anchors, transformers, linetrucks etc.) to restore power to the east coast due to the bankruptcy of major power suppliers? Does anyone besides me remember the caravans of utility trucks from all over streaming into NJ to restore power? Does everyone think this was done for free?
If you are able to produce more power than you use, fine, have your service drop removed and move on, but don't expect to be able sell excess power back to the utility by using THEIR grid and receive compensation at the going megawatt rate.
I don't mean to sound preachy, but a workable compromise has to be reached, and one that doesn't destroy utility companies, our very standard of living depends upon it.
well said
Paying for consistent and reliable service is one thing, but being gouged is quite another.
I'm in hurricane alley and do remember the trucks from all over the country. I was incredibly grateful, however, years of neglecting infrastructure was the root of the problem here. For years the local utility bled customers dry and reinvested little. They are bankrupt now, but their suits walked away with gazillions.
Yes, Public Service Commisions are rife with corruption, no surprise there, and it was like pulling teeth to get local management to pay attention to important maintance problems presented to them by the boots (me) and engineers on the ground. "Don't have the money in the budget" was a familiar refrain, meaning the greedy bastards upstairs don't want to give up their year end bonuses for coming in under their already inadequate budget.
I have no solution for that problem.
easy solution..
Make the local grid a municipal public good, just like the roads. That means you pay a certain number of city workers to go around, fix up the local grid and oh, you get taxed on it probably ona front footage
basis, that means inside the cities the local grid is paid for. Regional grid, well, either the cities
can contract for that and contract a certain amount of HVAC grid capacity,
or the states can cover that, or the Feds can pick it up....
35 years ago a friend's family from tehran visited him in south florida. one of his first observations was the backwards utility grid because everything was above grund strung between poles even in the city. in other words the utility companies have had a long time to fix the system and have diverted money to profit shareholders.
i agree with your other point. homeowners and businesses shouldn't expect to get more than the wholesale price for energy produced and put back into the system. they are simply producers of energy like any other producer who pays retail for their energy use to produce energy. if you want cheap energy you must produce it for your own use. the utility company would actually prefer it until they figure out an efficient way to store solar energy. eventually the offgridders will have to pay some utility tax just because. consumers will have a hard time wrapping their heads around that simple business concept.
I am still trying to get my head around this. If I save money in the bank I get penalized, but if I save electricity at peak times I not only don't have to pay for that electricity but I get paid as if I produced something?
FPL is losing 50% due to my adjustments and I've not altered my routine much. A few small sacrifices and smarter usage.
I wish everybody could do the same. Starve them and redirect financial resources at the same time.
I have all led lights in the house. Next is improved HVAC with higher efficency.
Double post.
Try widening your acceptable temperature range to 60 - 85. Sweaters and fans are both healthier than A/C.
This article was poorly written. I'm having trouble following it. It seems to be saying that these DR guys claim the power companies should pay them for not buying electricity during peak hours as if they has made that amount of electricity. If so that is a bizarre argument. You pay for what you consume, get paid for what you produce. Buying electricity cheaply and using it during peak hours or reducing your power usage during peak hours saves you $$$, but I cannot see how you can claim that doing this also entitles you to get paid by the electric company. Now if you are actually adding power to the grid, that is a differnet matter. But maybe I'm not understanding this.
I find it very hard to believe that batteries represent much of a threat to coal-, natural gas- or diesel-fired power plants. Electrochemical energy storage (I.e., electrical storage batteries) requires a massive amount of resources to store energy versus chemical energy storage (I.e., diesel fuel). For a lead-acid battery alone, not including interconnect wiring, requires more than 400 kilograms of material, primarily lead, to equal the energy stored in 1 kilogram of diesel fuel.
My solar panels turn the lead and acid back into power every day. I've yet to turn water vapor, soot, and carbon monoxide back into usable diesel fuel.
The underling force at work here driving the dialectic actually encompasses two different animals, assuming the central grid system is taxed beyond its ability to produce enough electricity to meet public demand:
1. Either the forced or voluntary reduction of consumption of central grid-supplied electricity by herd users and municipals and industrials at moments of peak demand and usage, or
2. An asynchronous web of local, decentralized electrical generation systems that each makes their own neighborhood completely self-sufficient (solar farms, wind farms, fuel cells, standard generators run off piped-in natural gas or hydro. Efficiency is key, a much better way than stringing high tension power lines all over the country, cleaner than coal and a logical transitioner to thorium powered main plants later). When tied into and synched to the central grid, the surplus energy created from these parochial systems can augment and provide moar power to the main grid. Electricity, once generated, must be used immediately. Yes, it can be stored in batteries or used up by conversion to other consumables and assets like potable water or heat, etc.
Currently power companies have to pay consumers for any electricity fed back into the central grid. Smart metering and its master control, that's a whole other story. I would think here rate deregulation is the ultimate goal of the utilities.
Demand Response (DR) technology is a joke. It raises prices of low-cost energy like coal and make makes high price technology like the solar cell look better than it is...
Even the windmills are now becoming a major problem because 100s of thousand of tons of windmill blades need to be disposed of as they wear out. There is no known technology to recycle these blades.
The so called new technology like solar is nothing more than a diode that is made from the same semiconductor material found in your PC. It just sounds cool to not call it a diode...
I am confident that the Chinese will find a way to recycle those wind power blades. This is just utility propaganda malarkey.
Courts Shmoorts........Everybody knows very well, that the issue will be decided by the biggest campaign donation. lobbyist payment, and kickback backroom deal.........heres how the system works......When a government or big corporation gets told they can`t do this......well they just go ....oh,....O.K. we will just do that then.......And joe blow taxpayer pays the bill.......
exactly
The peak demand reductions described in this item appear to be a little exaggerated, but are nevertheless worthwhile for all the reasons cited. It is a perfectly normal market reaction for consumers to attempt to reduce their costs at the peak point of their usage. This situation also calls attention to the controversy over the practice of consumers to sell back to utilities power produced by the former using their own wind or solar generators, and at what price. "Fairness" would suggest that the price of the sell back should take into consideration the utilities debt service and maintainance costs on its fixed lines, which the consumers continue to rely upon. But in no case should utilities be permitted to reject sell backs out of hand and hold consumers hostage to fixed line power.
This is a very useful and informative article. Thanks for bringing to our attention. This is a very important area of future economy, particularly as we shift from exponential growth to stationary culture, based on small community self reliance development. Food and energy are the basis of the future, we need to focus more on this and less on the Donald, the Hitlery, the Rothschilds etc.
WTF?