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Demand-Side Dreams

FERC would relax price caps—sending rates skyward—to encourage customers to curtail loads.

Fortnightly Magazine - November 2007

the tent—to introduce de facto retail choice into a non-choice state through the back door.

“Where states declined to adopt retail choice,” Tillman notes, “the states decided to leave risk management, including the use of demand response, to LSEs rather than individual customers. Those states selected an insurance pool approach to power supply.” In other words, by averaging costs across consumers, the pool reduces the risks to any individual consumer.

“By contrast,” as Tillman continues, “those states that adopted retail choice chose to shift the obligation to address market risks to individual consumers.”

To respect policy choices of individual states, Tillman advises FERC to clarify its position. It must concede that if a state has opted out of retail choice, then FERC lacks authority to mandate that markets must allow consumers in such states to submit their individual loads to ARCs to aggregate offers of DR resources to wholesale markets, including RTOs and ISOs.

“If the commission does not provide this clarification,” notes Tillman, “RTOs and ARCs effectively would be allowed to cherry pick the best load-response resources out of existing LSE demand-response programs. This would … strand investments made to serve the cherry-picked customers.”

By contrast, consider the aluminum industry giant Alcoa. Its ANOPR comments report that its smelting plants (operating at a low DC voltage but very high amperes) can respond with demand reductions “precisely and within seconds,” ranging anywhere from a fraction of a megawatt to 50 MW or more. That represents a much more efficient peaking resource than even simple-cycle gas turbine generators—though such interruptions cannot run longer than three to four hours for a single facility, without losing product.

However, Alcoa also possesses extensive private electric generating capacity (hundreds of megawatts in the Southeast), some of which it uses to run its smelting operations. Thus, Alcoa suggests that responsive load could combine with generation and bid in a packaged deal.

“This package,” Alcoa notes, “could provide superior performance by combining an accurate, fast-responding load that would then hand off to a slower-responding source [generation], thereby perhaps restoring the ability of the first load [DR] to provide an additional response as necessary.”

Such analysis from Alcoa only restates the obvious—that DR operates conceptually in a manner indistinguishable from electric power production. Thus, efforts to maintain separation between FERC jurisdiction over “generation,” versus state PUC jurisdiction over “retail service,” likely will prove impossible.

It also suggests if retail choice succeeds, it will happen not on account of attractive deals from energy retailers, but from DR that turns retail customers into de facto self-generators.

Deviations & Double Dips

The markets themselves also find fault with some of FERC’s suggestions for demand response.

The commission proposes that during supply emergencies (and maybe other times, too) it should bar RTO/ISO markets from assessing various types of uplift penalties for load deviations that stem from customer participation in DR.

This correction seems a no-brainer, but in fact has drawn criticism from among the market community, which maintains the deviation penalties account for real costs—costs that don’t go away simply because of DR.