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...
Yes, We Have No Negawatts
When you sell demand response back to the grid, how much capacity are you now not buying?
PLC, the customer’s prior usage recorded at peak, occurring at the very moment when resources are stretched to the breaking point. If the customer consumes power when capacity is most needed, that proves that the customer “caused” the need and, having caused the need, can now presume to remove that need by backing off.
Bowring elaborated at the conference:
“A customer cannot offer to not pay for a level of capacity for which it has no level of obligation to pay. If you’re not obligated to pay for it, you can’t very well give up the obligation to pay for it. Such an offer would be meaningless and without value.”
That leads directly to PJM’s policy that DR capacity credit can’t exceed the customer’s previously recorded peak load contribution, as Bowring explained:
“PLC is in fact used to define your obligation to pay for capacity …
“So clearly, the only metric by which one can judge how much you’re not paying is the price of that capacity and the amount you otherwise had to pay for. That’s what the PLC is and does.”
Thus, even if a customer engages in peak shaving in year one, causing its PLC to fall far below its normal contemporaneous level of demand and energy consumption (known as the customer baseline or CBL), that customer under PJM rules still could not cut its energy usage to zero, for example, and then claim capacity credit for doing so, because the customer, by peak shaving, has already saved those dollars, and can’t ask to be paid a second time, as Bowring related at the conference:
“What Mr. Sipe would have us believe is that, from a 100-MW unrestricted customer who has historically shaved peak load [to] 20 MW, that represents an opportunity to provide new savings to the system of that 80 MW. Well, it does not. Those 80 MW have already been saved.”
But haven’t we heard that song before?
The student will sense right away that Bowring here is reprising the old argument of “LMP minus G.”
Bowring is echoing the words of Bill Hogan, Robert Borlick and all the others who argued sensibly but unsuccessfully that when a customer sells demand response into the energy market—as distinguished from the capacity market—that customer will have avoided having to pay the cost of the curtailed generation, and so the proper level of compensation for energy DR can’t be LMP, the wholesale market price, but rather, the wholesale market price minus “G,” the generation component of the retail utility rate.
But as we know, and as Sipe reminds us, FERC rejected that advice, and ruled in Order 745 that energy DR can receive full LMP, after the commission found forcing DR providers to forgo the commodity savings (via LMP – G) created barriers and tended in PJM to kill off any meaningful level of DR participation in energy markets. (See, Order 745, March 15, 2011, 134 FERC ¶61,187; see also Post-Technical Conference Comments of EnerNOC, p.35, FERC Docket ER11-3322, filed Aug. 15, 2011.)
And if anyone doubts that the