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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

a similar example, FERC suggests demand resources supply certain types of ancillary services, such as operating or even spinning reserves, if technically capable. And to facilitate that, FERC says markets should allow DR to bid into reserve or ancillary services markets without also having to offer bids into the day-ahead energy market. However, RTO/ISO markets customarily practice what they call “co-optimization,” whereby the ancillary and energy markets are combined into a single auction, with DR resources required to bid in each category, and they don’t want to give that up.

One issue looks like a red herring, however.

The Edison Electric Institute has argued for the last year or so that it is wrong to offer a reward to the party offering DR (which often reflects reliability or capacity benefits accruing to the market at large), and then to allow the DR seller also to pocket the energy-cost savings from not purchasing the energy in the first place. EEI says such a practice represents double compensation. FERC then asks in its ANOPR whether EEI’s argument is correct.

In fact, PJM seems to bolster the EEI argument through a practice that some call a “generation offset,” whereby it reduces the DR incentive payment by the generation- and transmission-cost portions of the DR offeror’s retail bill. And ISO New England “reconstitutes” its DR incentive payments, as it calls it, by essentially backing off capacity payments in its FCM process, equaling capacity incentives paid directly in recognition of the DR-resource offer.

Even so, the great majority of ANOPR comments submitted to date reveal a clear consensus that EEI’s argument won’t hold water.

As the Sacramento Municipal Utility District puts it, “this ‘double benefit’ is not materially different from the benefit received by generators who are also customers of LSEs and whose sale of generating capacity may serve to reduce the prices paid for power by all customers, including itself.”

In fact, Congress itself seems to disagree with EEI. In section 1252(f) of the 2005 Energy Policy Act, which promises federal encouragement of DR, Congress says “the benefits of such demand response that accrue to those not deploying such technology and devices, but who are part of the same regional electricity entity, shall be recognized.”

Alcoa sums up the industry sentiment: “The double compensation contention is a chimera.”