• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

Federal Court 'Short-Circuits' Utility Plan

But demand response will be around another form.
By GLENN WILLIAMS
May 30, 2014 | 03:00 PM EDT
Stocks quotes in this article: EXC, NRG, CPN, ENOC, OPWR, ED

A federal court of appeals last week derailed energy efficiency. Specifically, the  United States Court of Appeals for the District Of Columbia Circuit overturned the Federal Energy Regulatory Commission's (FERC's) Order 745, which is a federal regulation establishing rules for demand response programs.

This decision was a short-term victory for independent power producers like Exelon (EXC), NRG Energy (NRG), Calpine (CPN) and American Electric Power (AEP). It could be seen as a threat to companies like EnerNOC (ENOC), OPower (OPWR) and Comverge (private). However, it is unlikely the Court's decision will stop demand response programs.

Often called DR, demand response is a relatively new program that uses markets to reduce demand. The general idea is to provide price signals to consumers, which previously have been obscured by intermediaries.

Just about everybody agrees DR is an important idea. DR reduces the need for new power plants. It reduces the need to build new transmission lines. It lowers wholesale power prices. It also reduces regional air pollution.

DR was a threat, however, to independent power producers. It did not matter if they used solar, wind, coal, nuclear or natural gas to make their electric power, all power producers saw DR affecting their margins.

Consequently, the Electric Power Supply Association and four other energy industry associations petitioned the Court of Appeals for a review of FERC's Order 745. According to the Court, FERC's rule sought to incentivize retail customers to reduce electricity consumption when economically efficient.

Petitioners complained that FERC's new rule goes too far, encroaching on the states' exclusive jurisdiction to regulate the retail market. In a split decision, the Court agreed with petitioners and they vacated FERC's rule in its entirety.

Among other factors, DR was a significant factor behind utilities' decision to retire dozens of their power plants before their time. Approximately 70,000 megawatts of coal and nuclear plants were expected to retire only because they had become surpluses and uneconomical. DR was a major reason why those plants had become uneconomical.

With DR gone, those nuclear and coal plants may have a reprieve. For example, in PJM Interconnection's latest capacity auction, 10,974.8 megawatts of demand response cleared the auction. Those 10,975 megawatts displaced the equivalent amount of coal and nuclear plants. Considering PJM is only one of ten markets, 10,975 megawatts is a lot of potentially-recoverable capacity.

However, it is unlikely the Court's decision will be the end of DR. In all likelihood, the decision will form the framework for demand response, version 2.0. Instead of a top-town program ordered by federal regulators, the new version will likely be a bottom-up version implemented by individual state regulators.

In fact, New York State already started the process. As was described in ConEd Power Plans for Today and Future, Consolidated Edison (ED) implemented a distribution-level demand response program. As described, ConEd's approach is exactly what the Court suggested was an appropriate use of DR technology.

The legal issue is the line between federal and states' rights. It turns out that line is less than clear. Typically, wholesale electric and gas is interstate commerce, which is regulated by federal regulators. Retail electric and gas is intrastate commerce, which is regulated by state regulators.

Since it can be argued demand response is aimed as retail consumers, demand response is a retail function. As a retail function, it should be regulated by states, not federal regulators.

Not everyone agrees with the decision, including one of the appellate judges. It is not clear if the Appellate Court's decision will be appealed. If appealed, the outcome is not clear.

In the short-term, there could be confusion in the wholesale markets. Long-term, federal demand response policies will likely be replaced by state policies. In the end, DR programs could look like states' renewable portfolio standards and renewable energy programs.

Investors should not be confused. Demand response is here to stay. Ultimately, DR will displace marginal generators and the units which were to be retired will be retired. Companies offering DR services like EnerNoc, OPower and Comverge will become significant stakeholders and contributors. In fact, EnerNOC already claims the Court's decision will have only minimal impact on their revenues.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Williams had no position in any of the stocks mentioned.


TAGS: Investing | U.S. Equity | Regulation | Markets | Energy

More from Energy

FuelCell Energy's Charts Tell Us a Bearish Story

Bruce Kamich
Apr 13, 2021 10:16 AM EDT

The speculative runup in FCEL seems to be over. Approach with caution.

These Stocks Are Losing Energy

Ed Ponsi
Apr 13, 2021 8:30 AM EDT

Several signs point to underperformance for energy names in the near term.

Avoid Tanking Up on Schlumberger

Bruce Kamich
Apr 12, 2021 11:48 AM EDT

Instead, the charts advise taking profits. Here's why.

Plug Power Is Still Unplugged

Bruce Kamich
Apr 12, 2021 11:21 AM EDT

The charts of PLUG are bearish and losing power.

Retirees: Get Plugged Into This Dividend Stock

Bob Ciura
Apr 7, 2021 12:27 PM EDT

Evergy is a high yield utility stock offering dependable dividends.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:17 PM EDT REAL MONEY

    Wednesday on Real Money Pro

    Get-rich quick schemes offer little more than pipe...
  • 11:09 AM EDT GARY BERMAN

    S&P Futures

    FIBOCALL: The S&P futures was off 1.5 %... ...
  • 07:47 AM EDT CHRIS VERSACE

    Positive News for a Cannabis Play

    Good news for this name in the Stocks Under $10 po...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login