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?
the capacity auction, upping the capacity price by about $35 per MW-day for most of the PJM footprint, and forcing the region’s ratepayers to pony up an added $1.8 billion each year.
“The maximum capacity that an end user can commit,” PJM asserted, “is the customer’s contribution to the system peak load for which capacity was procured.”
An Old Song
If that was all there was to the story, we could stop now. FERC would OK PJM’s new tariff, closing the loophole and removing the threat to reliability.
But there’s more.
EnerNOC, the demand response aggregator believed to be the primary “double counter” among CSPs, has mounted an aggressive and remarkable fight against PJM’s proposed fix. Aided with intellectual capital from Maine attorney Donald Sipe (Preti Flaherty), EnerNOC has advanced a new and highly controversial theory of how to measure the capacity value of demand response—a theory so enamored of the potential of demand response that that it just might win over such a prominent champion of DR as Chairman Jon Wellinghoff.
Readers might recall that this column last year gave credit to Sipe for turning Wellinghoff’s head in the case that eventually led to FERC Order 745, approving payment of the full locational marginal price for DR sold in energy markets, a decision seen by many as theoretically unsuportable. (See, “ Two Hands Clapping ,” Fortnightly April 2010)
And in June, in fact, the commission suspended PJM’s tariff proposal, finding that it likely was unjust and unreasonable, and called for a staff-led technical conference on July 29 to delve more deeply. (See, 135 FERC ¶ 61,212, June 3, 2011.)
Sipe’s theory goes against conventional wisdom, treating electric capacity and energy as very nearly the same thing.
At the technical conference in July Sipe sparred with market monitor Joseph Bowring, but first warmed up the crowd with a folksy analogy:
“Energy is kind of like dating, right? We hope you show up at the bar and we hope you’re attractive, and you know, we’ll have a good time when you’re there.
“Capacity is like marriage; you’ve made a commitment. You’ve got to be there the whole time, but essentially, you’ve still got to deliver a charge or you’re not doing your job.”
With this ruse Sipe caught the PJM’s market monitor off guard, with Bowring himself tripping the snare:
“I agree with Don that energy and capacity are clearly distinct and different products. Well, actually I don’t agree because I say they are different products and Don says they’re all the same thing, I guess.”
In PJM’s world, and throughout the power industry for that matter, capacity is thought of generally as a static resource matched up with customer demand, such that the load can assert ownership of that resource, or at least lay a claim that the resource is dedicated to serving that customer. That claim is evidenced by the customer’s obligation to pay for the capacity—or, in the case of demand response, by a promise to curtail consumption traded to gain release from that obligation. The obligation is cemented by