Regulating Electricity: The Need to Modernize an Archaic System
After extreme recent weather afflicting people across the country, many Americans have had to face the difficulties resulting from power outages. In addition to extreme weather which may negatively impact access to electricity, the American electricity industry also runs on an antiquated, unreliable system where even the slightest disturbance can cause a blackout. Electricity begins its long journey to consumers when it is generated at power plants using mostly non-renewable resources like coal and oil. This power is then distributed and traded across regions through a system commonly known as “the grid”.[1] The grid is what makes our electricity so unreliable and environmentally unfriendly: it is so unnecessarily complex and its maintenance is expensive and difficult. Furthermore, as new technologies arise to help fix the system, the means to regulate the grid has come under fierce debate.
Regulation of the grid is broken up into federal and state divisions. The Federal Energy Regulatory Commission (FERC) regulates the regional transmission grid that transports electricity nationwide. The FERC also holds jurisdiction over the wholesale markets that buy and sell power to select large-scale customers (from power plants to utilities). States regulate the local grid that delivers electricity to homes and businesses.
While the jurisdiction of the state and federal government seems clear above, its lines were blurred in FERC v. Electric Power Supply Association (EPSA) (2016).[2] This case brought to concern the problems with an energy-saving method called demand-response—a technology that was developed because of the overpricing and inefficiencies of the current grid. Currently, most states keep the retail cost of electricity relatively stable. However, these states receive their electricity from a wholesale market, where the price of electricity varies immensely on a daily basis. Therefore, if energy costs increase, household demand for energy would not subsequently shrink because of the stable retail price, which increases the likelihood that the grid will be overwhelmed. The FERC had instituted Order 745 under the Federal Power Act that provides consumers financial incentives to reduce energy usage during peak demand hours. However, the EPSA then challenged Order 745.
The issue at hand was one of jurisdiction: Order 745 affects a consumer’s decision to purchase electricity—a retail decision which should clearly be under the jurisdiction of the states but instead Order 745 was under federal jurisdiction. Despite this, the Court ruled 6-2 in favor of the FERC. Because the commission specifically restricted its demand-response policy to the wholesale market prices (consumers decrease use when wholesale prices are up which is peak demand) and not retail markets, it was well within its limits. This literal interpretation of the retail rate opens up the regulation of other wholesale energy markets, including the renewable energy market.
Even further, the EPSA ruling opened up a realm of possibilities for the aged energy system’s replacement: the smart grid. The smart grid is a computerized electrical grid that can distribute energy more efficiently, quickly repair itself, reduce energy and maintenance costs, and, most importantly, integrate energy from renewable resources for mass-use. The high reliability of the smart grid lies in its automated and more efficient core technology—the same technology the EPSA case cleared and even encouraged.
The increased use of renewable technology via the smart grid as encouraged by FERC v. Electric Power Supply Association is an area of concern for power plants and utilities. The case allows for households using their own renewable energy during peak times to also be compensated, as they are not using the high-demand energy from the main grid. With both the burden of compensation and overall decreased power usage because of green substitutes, the traditional energy market is then financially strained. When the utilities generate significantly less revenue, maintenance and the system’s reliability is compromised.
These concerns were addressed in the case Hughes v. Talen Energy Marketing (2016),[3] in which Maryland energy regulators predicted an electricity-generation shortage because of the decrease in coal resources. Thus, the state began to solicit construction proposals. Out of the bidding companies, Commercial Power Ventures (CPV) won the bid. Maryland also drew a contract with CPV including a power-generation order that allowed them to sell their generated power to the FERC’s regional transmission organization at a higher-than-wholesale rate. The remaining bidders then sued stating that the state power generation order encroached on the FERC’s wholesale management jurisdiction. In a unanimous decision, the Supreme Court ruled that such a power-generation order was illegal and ruled that federal law preempted state law. This ruling helped prevent a potential loophole allowing oil and coal energy-generators to produce energy at larger profits while still charging their customers minimum rates. It therefore opens more doors for green energy to surpass its nonrenewable competitors.[4]
The Hughes decision provided yet another hit to traditional utility industry revenue-- and the court is about to hear one more case that could potentially further jeopardize utility funding. In Salt River Project Agricultural Improvement and Power District v. SolarCity Corporation, SolarCity has sued the Salt River Project (SRP) because it charged a fee to all solar energy users. This in turn affected SolarCity’s performance, since it is the premier supplier of solar panels. The SRP argues that such a charge is necessary in order to maintain the current electrical grid because of the subsidies solar energy-users are given from not using the main grid at peak-demand.[5]
The SolarCity case explicitly brings up an encapsulating point: given that society depends on its utilities, how is it possible to maintain the current electricity grid with falling revenues but still encourage growth in the green energy sector? On the surface, the answer seems simple: the government needs to invest in completely reconstructing the current grid. It can do so with a computerized smart grid, and the time to update is now.
[1] Brain, Marshall, and Dave Roos. "How Power Grids Work." HowStuffWorks Science. April 01, 2000. Accessed February 1, 2018. https://science.howstuffworks.com/environmental/energy/power.htm.
[2] Christiansen, Matthew. "FERC v. EPSA." Stanford Law Review. July 13, 2016. Accessed February 1, 2018. https://www.stanfordlawreview.org/online/ferc-v-epsa/.
[3] “Hughes v. Talen Energy Marketing, LLC.” Oyez. Accessed February 1, 2018. https://www.oyez.org/cases/2015/14-614.
[4] Barber, Wayne. "Supreme Court Finds Maryland Power Generation Law Preempted by FERC Jurisdiction." Power-eng.com. April 20, 2016. Accessed February 11, 2018. http://www.power-eng.com/articles/2016/04/supreme-court-finds-maryland-generation-law-preempted-by-ferc-jurisdiction.html.
[5] Henry, Devin. "Supreme Court to hear arguments in solar power dispute." TheHill. December 01, 2017. Accessed February 11, 2018. http://thehill.com/policy/energy-environment/362825-supreme-court-to-hear-arguments-in-solar-power-dispute.