Alerts and Updates

Energy, Environment and Resources Update—Issue 6

Issue 6 | January 2016

FERC Releases Demand Response Report

The Federal Energy Regulatory Commission (FERC) has released its latest annual report on demand response and advanced metering. The Energy Policy Act of 2005 requires FERC to issue the report annually to address demand response impacts, programs, potential and barriers. In the context of organized wholesale energy markets, overall potential peak load reduction through demand response, i.e., the ability to reduce load within the market footprint using programs that compensate program participants for their reduction of such load, has held steady through 2013–2014, with ISO New England Inc. and the Midcontinent Independent System Operator, Inc. as the two regional transmission organizations with the highest reduction percentages of 10.2 and 9.0, respectively. With respect to customer type, industrial customers continue to lead with about 55 percent of overall demand response capability, and residential second at 26 percent.

One of the major barriers to demand response participation noted in the report is the inability of customers to manage their electricity demand based on the rate charged at a particular time. Some states are taking steps to address these issues. California, for example, is instituting time-of-use rates for residential customers, reducing the number of simplified rate tiers, adding a surcharge for very large energy consumers and performing educational outreach. In Hawaii, demand response program goals and metrics must be established and the programs themselves must be integrated. Other states, such as Idaho, Illinois, Michigan, Minnesota, New York, Pennsylvania and Rhode Island, have ongoing initiatives to reduce energy demand and increase efficiency. While states continue to move forward with their demand response and energy-efficient programs, the report provides an update on the uncertainty surrounding FERC’s ability to regulate demand response, which is now before the courts.

New Jersey Board of Public Utilities Revises Incentive Program

By Phyllis J. Kessler

At its December 16, 2015 meeting, the New Jersey Board of Public Utilities (Board) issued an order approving a revised incentive program for renewable electric storage to be installed in Fiscal Year 2016 (FY16), which began July 1, 2015. The renewable electric storage incentive program was initially established as a competitive solicitation in FY15 with a $3 million budget. That program resulted in 13 projects being approved by the Board, but there were insufficient funds to support all of the proposed applications. Based on comments received from interested parties following the results of the FY15 incentive program, the Board’s staff recommended revisions to the program, which have now been adopted by the Board.

The new program supplants the competitive bid program with an open enrollment program that will offer a rebate of $300 per kWh. The Board approved an increase in the budget from $3 million to $6 million, with half ($3 million) allocated to the open enrollment program, and the balance to be allocated to a program that will be developed by Rutgers’ Laboratory of Energy Smart Systems (LESS). Applications for the open enrollment program will be accepted starting at 9:00 a.m. on March 1, 2016. Maximum incentive levels are set at $300,000 per project and $500,000 per entity, available on a first come, first served basis until the budget has been exhausted. An “entity” is defined as either the site host or the project developer, if the developer proposes to own the system. To be eligible for a rebate, payable after the project commences commercial operation, the proposed electric storage system must be integrated with either a new or existing net metered, behind the meter Class I renewable energy installation that is interconnected with the New Jersey electric distribution system at a site served under a non-residential tariff. “Class I” renewable energy is defined as electricity derived from solar energy, wind energy, wave or tidal action, geothermal energy, landfill gas, anaerobic digestion, fuel cells using renewable fuels and, with written permission of the New Jersey Department of Environmental Protection (DEP), certain other forms of sustainable biomass.

Extensions to Water Conservation Regulation in California

By Jolie-Anne S. Ansley

On December 21, 2015, the State Water Resources Control Board (Water Board) released a proposed regulatory framework for modifications to the now-contemplated extensions to the Emergency Regulation for Urban Water Conservation currently in effect in California.

The Water Board convened a process with stakeholders to solicit inputs on potential modifications to the Emergency Regulation, which culminated in a workshop held on December 7, 2015. The extensions to the Emergency Regulation were drafted in response to an Executive Order issued in April 2015, in which Governor Brown directed the Water Board to achieve statewide reductions of 25 percent in potable urban water use. The proposed regulatory framework provides staff recommendations for modifications to an extended Emergency Regulation. Staff recommend the following four modifications: (1) an adjustment to the conservation tier of an urban water supplier to account for differences in evapotranspiration rates (climate) relative to the statewide average, which will benefit the desert regions of the state; (2) an adjustment to the conservation tier of an urban water supplier to account for water-efficient growth since 2013; (3) a one-tier (4 percent) adjustment to the conservation tier of an urban water supplier to account for development since 2013 of drought-resistant supplies in the form of desalinated seawater or indirect potable reuse; and (4) a modification to the current exclusion for commercial agriculture to require that the exclusion applies only to water supplied to such customers producing a minimum of $1,000 per year in revenue. Water Board staff further propose a cap of 4 percent on all credits or adjustments to an urban water supplier’s conservation standard. Otherwise, staff recommend maintaining all other elements of the current Emergency Regulation.

The Water Board currently anticipates releasing a draft Emergency Regulation for additional public comment in mid-January 2016. Consideration by the Water Board of an extended Emergency Regulation is anticipated to occur in early February 2016.

Mexico Completes Successful Onshore Oil Auction

On December 15, 2015, Mexico conducted its third in a series of oil auctions in 2015, this time focusing on onshore fields with combined proven and probable reserves of about 49 million barrels of oil equivalent. Winning bids were awarded for all 25 open contracts located in mature fields that run along the Gulf Coast and include areas where Mexico’s oil industry began a century ago. Once developed, production in these fields is expected to reach 77,000 barrels per day and attract investment of US$1.1 billion. Forty bidders pre-qualified for the auction, with successful bids made by 14 different bidders. Winning bids ranged from 10.56 percent of pre-tax profits for the San Bernardo field won by Mexican firm Sarreal, to 85.69 percent for the Moloacan field won by a consortium led by the Netherlands’ Canamex Dutch, along with two Mexican firms.

In addition to being the first onshore auction, this auction was notable for the role that private Mexican oil and gas firms played. Unlike the earlier offshore auctions, where Mexican firms needed to partner with foreign companies because they lacked the experience required by the government to work in the more complicated offshore environment, many of the winning bidders in the December 15 auction have little or no experience and are backed by private capital. Among the Mexican firms wining contracts were a consortium led by Geo Estratos (four winning bids), start-up Strata Campos Maduros (three bids), Grupo Diavaz and Compania Petrolera Perseus. Concern has been raised that the desire to secure a bid by many of these start-ups may have resulted in bids that are not commercially viable, especially in a time of declining oil prices. However, this auction represents an important step in the diversification of the Mexican energy market and a move away from more than 80 years of monopoly control of oil and gas by state-run PEMEX.

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