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...
Two Hands Clapping
Has demand response hit an evolutionary dead end?
The final third missive surfaced in January when, on behalf of CDRI, Sipe’s comments assumed a more formal, conventional tone, and asked simply for policy guidance from FERC in resolving the impasse that has emerged in New England, concerning the ISO’s effort to develop a regime for price-responsive demand. ( See, Request of CDRI for Policy Guidance, FERC Docket ER08-830, filed Jan. 28, 2010 .)
In this case, ISO New England described how the regional policy debate boiled down to two alternative program designs—a demand-side option by which energy is priced on an hourly, real-time basis, and a supply-side option by which market participants could offer load reductions into the wholesale energy markets in a manner similar to supply offers from generators, in that offers would be integrated into the market-clearing, price-setting, and resource-scheduling algorithm. ( See, Report of ISO New England and NEPOOL, FERC Docket ER08-830, filed Dec. 18, 2009 .)
What makes this story especially interesting is that, before he became FERC chairman, the then-commissioner Wellinghoff engaged in some theoretical musings on the true essence and purpose of DR. ( See, J. Wellinghoff and D. Morenoff, “Recognizing the Importance of Demand Response: The Second Half of the Wholesale Electric Market Equation,” 28 Energy Law Journal 389 .)
In that article, Wellinghoff acknowledged the fact that FERC has no direct authority to regulate generation or its antilog, DR. Thus, Wellinghoff suggested that the most compelling jurisdictional justification for FERC to be able to promote DR as an essential component of a market structure lies in the effect that DR can have on rates.
That interpretation might not be so far off from Sipe’s vision. In fact, a trusted source tells this columnist that some of Sipe’s comments both confounded and intrigued FERC’s leadership at the very highest levels, leading one commissioner to ask a prominent FERC staffer to call Sipe and ask him what the heck he was trying to say.
The answer reportedly came back that the true purpose of DR is to drive power prices down as far as possible, rather than to smarten up the grid by adding a second clapping hand to otherwise imperfect power markets.
* First to draw this analogy may have been Eric Hirst and Brendan Kirby, in a study they put together in 2001 for the Edison Electric Institute and the Project for Sustainable FERC Energy Policy. ( See, E. Hirst, B. Kirby, Kirby, Retail-Load Participation in Competitive Wholesale Electricity Markets, Jan. 2001, available from the Maryland Pub. Serv. Comm’n .)