[BETA] Fortnightly

The transmission superhighway still needs major investments. Rate incentives were working -- until FERC started backing away from them. FERC should assert its authority more aggressively to promote the vision of a robust interstate grid.

A few months back, the Federal Energy Regulatory Commission directed Deutsche Bank Energy Trading LLC to show cause why it shouldn’t be assessed a civil penalty of $1.5 million and be made to return some $123,000 in allegedly unjust profits from power trading in markets run by the California ISO.

(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit takes issue with Contributing Editor Steven Andersen’s characterization of utility customers as “crazy.”

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 decision that stretches federal authority. Nevertheless, economic benefits will result if DR programs are well implemented to avoid gaming the system and distorting the market.

A fierce debate has erupted in the utility policy community, with battle lines drawn within FERC itself. In the effort to improve system efficiency, two competing alternatives stand out: to build the smart grid on large-scale demand response (DR) programs, or to build it around consumer behavior in retail markets.

On March 18, the day after this issue went to press, FERC was scheduled at its decisional meeting to open a new formal inquiry on the role of demand response in regions that already have competitive wholesale power markets. In particular, how much money should grid operators pay to electric customers who promise not to buy wholesale power?

Back when the U.S. economy and power consumption still were bubbling, PJM reported in August 2006 that customer curtailments during a week-long August heat wave had generated more than $650 million in market-wide energy savings—all at a mere $5 million cost, as measured in direct payments made to the demand response (DR) providers, set according to wholesale power prices prevailing at the time. Where else but the lottery can you get an instant payoff of 130-1?

Regional Transmission Organizations (RTOs) have not performed as well as open wholesale markets over the past decade. RTO advocates want governmental intervention, but the best answer may be requiring RTOs to file system lambdas.

About four months ago, at a conference at Stanford University’s Center for International Development, the economist and utility industry expert Frank Wolak turned heads with a not-so-new but very outrageous idea.

John D. Chandley, Principal, LECG LLC: Bruce Radford’s “An Inconvenient Fact” provides a helpful critique of a fundamental element of open-access transmission reform, one of the most important rulemaking cases affecting electricity regulation at FERC.

Cynthia Bogorad, Spiegel & McDiarmid, Washington: From my perspective representing transmission-dependent utilities, I am very sympathetic to the underlying concerns that appear to be driving the TDAs’ proposal. However, the TDAs’ proposal is not the answer.