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Encore for Negawatts?

Congress renews PURPA’s call for conservation and load management, but the world has changed since the 1970s.

Fortnightly Magazine - February 2006

ISO-NE Demand Response Summit. For graphic summary data, see Comments of ISO New England, p. 16, filed Dec. 19, 2005, FERC Docket No. AD06-2.)

The lack of interest extends also to time-of-use and real-time pricing (RTP) plans. For example, many cite a key study published by the Lawrence Berkeley Laboratory for the Department of Energy’s Environmental Energy Technologies Division to show a surprising number of RTP programs with little or no customer participation. (See, Neenan, Barbose, Galen, and Goldman, “A Survey of Utility Experience with Real-Time Pricing,” December 2004.) The exception, however, seems to be in the Desert Southwest, where Salt River Project and Arizona Public Service Co. compete with each other, and together show a one-in-three participation rate in RTP plans among retail electric customers.

The rise of regional spot markets and the consequent irrelevancy of internal utility avoided-cost calculations also may have dampened interest in demand-response (DR) plans for other reasons. Many observers believe that the consequent disconnect between bid-based wholesale market-power prices and static retail-rate designs based on cost averaging has depressed participation in demand-response programs, as very few real price signals ever filter their way down to the consumer.

Perhaps also, as the Steel Manufacturers Association claims, this declining customer participation marks “a rational response” to the price increases, volatility, uncertainty, and general lack of confidence (the Enron debacle, “wash trades,” etc.) that have attended some regional spot markets. (See, Discussion Paper, “Getting Serious About Demand Response,” March 22, 2005, p. 9, reproduced in Comments of SMA, filed Dec. 19, 2005, FERC Docket No. AD06-2.)

Into this climate steps Congress, which amended PURPA to add a new federal initiative on demand response in the Energy Policy Act of 2005 (EPACT) enacted last fall. In particular, EPACT sec. 1252(d)(3) requires FERC within 180 days of enactment to report to Congress on the market penetration, saturation, past performance, and future potential of both electric utility advanced metering infrastructure (AMI—interval meters and associated software and systems) and DR programs. Also, FERC must report on the role and potential of DR in resource planning, in terms of peak energy demands and transmission capabilities.

Thus, on Nov. 3, FERC opened an investigation and launched a “voluntary” industry survey of technology, practices, policies, experience, and opinions, with a technical conference set for Jan. 25, 2006, in Washington, D.C. (See, FERC Docket No. AD06-2, issued Nov. 3, 2005.)

In all likelihood, Congress added Sec. 1252 to EPACT in part to appease the environmental crowd and to get legislation passed. Also, it may have seen Sec. 1252 as a carrot to state PUCs in states that have opposed the RTO revolution, ensuring a continuing niche for states and old-style utilities in the resource planning process—a process increasingly being taken over by the regional system operators, under FERC’s purview.

Nevertheless, the move may end up forcing unintended results. In short, according to the tenor of comments filed so far in FERC’s DR survey docket, the EPACT initiative, ironically enough, may well end up having the opposite effect: It may give an added boost to the RTO revolution