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Federal-State Partnership

Transforming DR and smart-grid policies into reality.

Fortnightly Magazine - January 2010

which the FERC and NARUC proposed criteria that proposals for DOE smart-grid stimulus funding should meet.

The Work Ahead

The electricity footprint has seen little change so far. But with all of this activity involving the majority of state regulatory commissions, hundreds of utilities, thousands of technology and service providers, as well as policy advocates, the nation appears at the cusp of an electricity system transformation. While there’s no guarantee, understanding what actions still are needed is essential to success. In this regard, the FERC’s national assessment report identified many real barriers—regulatory, economic, technological, and attitudinal—that must be overcome to implement this transformation. As in many other transformational contexts throughout American history, the authority and roles of federal and state governments and their ability to work together are critical to the chances for this national policy to succeed.

In its most recent annual assessment, the FERC summarized six recommendations to overcome the most salient of the barriers to success:

• Sharing of information on effective program designs;
• Increasing customer awareness of, and education about, DR programs;
• Coordinating wholesale and retail DR strategies;
• Improving and expanding interoperability and open standards;
• Coordinating DR and energy efficiency policies; and
• Articulating clearly the role of DR in operational and long-term planning, and the recovery of associated costs. 26

Not surprisingly, these are also the goals of the national action plan that FERC is preparing.

The New Electricity Economy

With the example of the revolution in information technology and communications brought through the Internet, it’s instructive, if not essential, to look past the birth pangs of this electricity system transformation to consider whether, once the enabling electronic communications platforms are constructed and complete, the rules of participation and practicalities of being connected will be able to accommodate a scale of participation that couldn’t have been imagined until only recently. Three areas of concern stand out, all of which are within FERC’s jurisdiction, at least in part, and each of which would appear to require more attention than FERC currently is giving.

First, FERC must strengthen its policy toward coordination and standardization of the development of DR in the organized wholesale electric markets. The DR endgame is price-responsive demand, in which retail end-use customers not only monitor their consumption, but actively determine when, how much, and at what price they will buy (or sell) electricity. The organized markets will play a central role. Price-responsive demand requires a wholesale market price, and those prices are revealed in the organized independent system operator (ISO) wholesale markets. Even though regional and local markets will continue to exist, the development of innovative products and services will depend on market incentives and scalability. It simply won’t work for every region to have its own set of market products and rules for participation (as they do today), just as it made no sense for every state to have its own set of automobile emission standards.

In its recent notice of proposed rulemaking, Standards for Business Practices and Communications Protocols for Public Utilities ,27 FERC took a positive step