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...
A Buyer's Market
Getting the most from demand response—despite a flawed FERC rule.
result if DR programs are well implemented to avoid gaming the system and market distortions. These can be mitigated by disqualifying industrial load and behind-the-meter generation from receiving full LMP, and through lowering transaction costs.
It isn’t obvious how a wholesale tariff could make explicit distinctions among end-user customer classes, taking into consideration retail rate questions FERC studiously finessed. But these restrictions are essential to avoid market distortions. They must be taken seriously by market organizations together with their respective state utility commissions. If this isn’t feasible in a wholesale tariff, states should consider exercising the authority left to them in Order 719 to withdraw from federal regulation in this domain and develop retail DR programs independently.
1. FERC Order 745, “Demand Response Compensation in Organized Wholesale Energy Markets,” 134 FERC p61,187, 18 CFR Part 34, Docket No. RM10-17-000
2. See Bruce W. Radford, “ One if By Wholesale, Two if By Retail ,” Fortnightly, October 2010; “ The Nutty Professors: Bill, Fred and the Strange Case of Demand Response ”; “ FERC Leaders Appear Split Over Smart Grid ”; and “‘ Nutty Professors’ Take Two: A Guest Editorial from Dr. Alfred Kahn ,” Fortnightly’s Outsmarting the Grid Blog.