Frontlines

DSM Revisited

 

 

A reader claims that wholesale power competition makes conservation more valuable than before.

When the phone rang it was Marija Illic, the scientist from M.I.T., calling to see if we could make one last correction to her article that ran last issue, but it was already too late.

Marija apologizes that she meant to say "financial transmission rights," rather than "firm transmission rights," in defining the term "FTR." (See, "Don't Rush the Seamstress: Second Thoughts on the Marriage of the Northeast Grids," , Sept. 1, 2001, p. 29.)

"After all," she told me, "if you're going to criticize the only wholesale electric market that works, you might as well get your facts straight."

THEN CAME ANOTHER CALL: "HE'S WRONG - A PUBLIC BENEFITS CHARGE IS NOT A SUBSIDY. IT'S NOT A TAX EITHER." That was Don Gilligan, on the phone from Predicate, LLC, a consulting firm in Foxborough, Mass., that gives advice to energy service providers. His clients include NAESCO, the National Association of Energy Service Companies. He called to take issue with Sheldon Switzer, pricing and tariffs director from Baltimore Gas and Electric. In our August issue, Switzer had accused some of using the California power meltdown as a "scare tactic" to force lawmakers to enact public benefits charges to fund conservation, renewable energy, and demand-side management (DSM). But Gilligan says DSM can pay its own way.

Gilligan sent me a 50-page study by William Marcus and Greg Ruszovan of JBS Energy, Inc. ( www.jbsenergy.com) - commissioned by NAESCO and the Pace Law Energy Project. The study suggests that during PJM's summer peak (June-Sept., 2000, weekday, noon to 6 pm), with average energy prices running $49 per megawatt-hour (MWh), a reduction in load will return benefits running 464 percent of market price. The reason is deregulation and a regional wholesale power market. Ratepayers no longer pay a company-specific average generation cost. Markets now clear at the cost of the least-efficient dispatched unit across the system, so everyone pays the higher marginal cost. That makes load reduction more valuable, says Gilligan.

Even California has bought into the notion.

Assembly Bill 970, signed last year by California Gov. Davis, told state utility regulators to impose DSM to trim peak demands and to reward utilities with cost allowances that "explicitly include the system value of reduced load on reducing market clearing prices and volatility."

Last October, says Gilligan, administrative law judge Linda Bytof OK'd an on-peak cost recovery "escalator" of 4.0x for physical years 2001-2002, dropping to as low as 3.0x in out years as generators and energy service providers tend to bid down such values in the long term.

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