FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
California: Mandating Demand Response
California’s load-management experience argues for formal DR standards
Analytical issues in this area include the need to modify existing cost-benefit methodologies for evaluating demand-side programs, to develop protocols for measuring DR impacts and to implement innovative rate designs that incorporate the risks of outages and high peak-generation costs. Current efforts by utilities and commissions to develop workable dynamic rate designs and effective protocols for measuring DR impacts are steps toward solving these problems.
Additionally, regulators and utilities need to develop a consistent message on DR and find ways to better educate customers about the costs embodied in current rates. Customers also need to be informed about the benefits that could come from broad adoption of time-varying and dynamic rates, the true impacts on their electricity costs that would come from such a change and the options they have for responding. This could begin with stressing the simple message that electricity costs more during peak periods, emphasizing the fairness of time-varying rates. Many customers assume such rates would amount to rate increases when, in fact, utility revenue would not change—customers whose consumption patterns reflect below-average peak consumption would see bill reductions; those with above-average peak consumption would see increases that reflect the degree to which their peak consumption currently is receiving a subsidy from other customers.
Policy makers need to design and adopt rates and program designs that reflect the value of DR to the electricity system and to customers. Those designs must be effectively marketed to customers.
With well-designed rate designs in place, the focus would shift to overcoming the technological barriers to DR. First and foremost is the need to install AMI systems. This likely will happen in California over the next five years.
To get the most out of the AMI investment, it may be necessary to equip the customer’s home with enabling technologies such as automation that facilitates reducing demand during critical-peak times. The use of existing technologies that support customer response should be integrated into program and tariff offerings, while further development of such technologies continues.
Additionally, rates need to be designed with an understanding of the level of response that customers are capable of providing. Customers provide a significantly higher level of demand response when equipped with enabling technologies that automate the response and facilitate the control of electricity consumption at multiple end-use points. Ultimately, these enabling technologies need to be adopted on a large scale for California to approach its DR potential.
One approach being considered is the California Energy Commission’s authority to set “load management” standards. These standards originally were created in the mid-1970s to allow the commission to develop programs for reducing peak demand and reshaping utility load-duration curves. The commission is expressly authorized to consider the following load management techniques, although its authority is not limited to these three:
• Adjustments in rate structure to encourage use of electrical energy at off-peak hours or to encourage control of daily electrical load. Compliance with those adjustments in rate structure shall be subject to the approval of the Public Utilities Commission in a proceeding to change rates or service.