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One if by Wholesale, Two if by Retail

Which path leads to the smart grid?

Fortnightly Magazine - October 2010

and Ott, “The Integration of Price Responsive Demand into PJM Wholesale Power Markets and System Operations,” available from the Harvard Electricity Policy Group, in the scarcity pricing section of its online research library, at www.hks.harvard.edu/hepg.)

Led by Centolella’s vision, the Ohio PUC repeated this argument in comments it filed on PJM’s proposed scarcity pricing regime now pending before FERC. In short, the Ohio PUC argued that definitions of “scarcity” should float freely as ratepayers react to prices, so that PJM shouldn’t be so quick to invoke the proposed scarcity price ceiling of $2,700/MWh:

“When primary reserves become short, a small increase in energy prices … may be sufficient, given PRD, to reduce energy demand and allow PJM to maintain its reserve requirement.” (See, Comments of Ohio PUC, p. 12, FERC Docket ER09-1063, filed July 30, 2010.)

Under price-responsive demand, the very notion of a customer baseline—and of DR as a variation from that baseline—becomes somewhat spurious. As Bill Hogan commented at the FERC conference, with dynamic retail pricing, traditional DR programs simply go away.

“End of story,” Hogan said.

Does dynamic retail pricing mean the end of traditional industry concepts such as load and capacity requirements? Not quite. They become fuzzy, but still capable of modeling, as PJM points out in its recent progress report on price-responsive demand:

“PRD demand curves submitted to PJM by LSEs will be an added input into the dispatch algorithm in the same way as generation offer curves.” (See, PJM Information Filing, p. 7, FERC Docket ER09-1063, filed Sept. 20, 2010.)

But what of Wellinghoff’s fear that retail-level dynamic pricing will fall prey to political realities?

The PJM report urges FERC not to focus entirely on the wholesale sector, “simply because, for example, the supply side option offers a more favorable revenue stream.”

Yet it also acknowledges the “Bakersfield Effect” ( i.e., the smart-metering backlash seen in California) and the initial regulatory setback that occurred in Maryland.

“These developments,” PJM notes, “may portend a somewhat longer timeframe for deploying AMI and implementing the dynamic retail rates that will enable price-responsive demand.”

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