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
storage systems that store energy during off-peak periods for use during peak periods, such as thermal storage, pumped storage, and other storage systems.
• Mechanical and automatic devices and systems for the control of daily and seasonal peak loads.
The commission’s extant load-management authority may be a valuable, even necessary, policy tool for the state to bridge the gap between the current level of DR in California and its full cost-effective potential. This policy tool may be particularly effective in two areas. One is modifying the default tariff, which could be changed to a dynamic tariff that reflects the higher cost of using electricity during critical peak hours and lower cost during off-peak hours, and provides a sharply directed signal for lowering peak demand. The other is the adoption of technologies enabling customers to better respond to the opportunities created by dynamic-pricing tariffs.
Applying Mandatory Standards
California has not met its DR goals, largely due to the absence of dynamic pricing and enabling technologies. To overcome these barriers, the Energy Commission will deliberate on whether to set load-management standards.
In the late 1970s and early ’80s, the state experimented with the first generation of load-management standards and this largely was successful. The standards were useful in stimulating discussion about innovative ways of reducing peak load and deferring or eliminating the need for peaking capacity. Some of these standards, such as mandatory time-of -use rates for large customers and direct load control of central air conditioners, still are around and continue to be refined. However, the current and projected DR deficit is large and persistent, making it necessary to explore new avenues for managing it.
Given the state’s success with implementing appliance and building standards, it makes eminent sense to revisit the load-management standards. Of course, the next generation of load-management standards will differ substantially from the first generation, since much has changed in the intervening three decades. To implement a load-management standard, the commission would be required to follow a formal rulemaking process as it does with appliance and building standards.
Such standards likely will yield a substantial financial benefit to the state. Three ideas for DR standards present a compelling, though illustrative, picture of how much additional benefit would be derived by pursuing the California Energy Commission’s load-management standard-setting authority.
The first standard calls for default dynamic pricing; the second for programmable communicating thermostats (PCTs) in all residential and small commercial and industrial buildings; and the third for automatic DR software (automated DR) in medium and large commercial and industrial buildings.
These standards would focus on the two key barriers to the faster deployment of DR in the state: Lack of dynamic pricing and lack of enabling technologies. They are designed for use on a day-ahead basis but, if need be, also can be deployed on a day-of basis. From a planning perspective, both triggering strategies are important. The day-ahead strategy decreases the likelihood that emergencies will be encountered, while the day-of strategy provides a mechanism for dealing with the emergency when it does occur.
These examples enhance the role of