JUPITER, Fla., May 9, 2002 -- "Demand response should no longer be the exclusive province of retail markets," according to William Massey, Commissioner of the Federal Energy Regulatory Commission (FERC).
At the Dallas, Texas spring meeting of the Peak Load Management Alliance (PLMA), Commissioner Massey pointed to California as proof of what can go wrong when retail and wholesale power markets are improperly structured.
As recently as two years ago, Commissioner Massey claimed he was the "lone ranger" in advocating the explicit consideration of demand response in the policies of the FERC. In those days, the focus was on promoting markets with an adequate number of suppliers, sufficient transmission, a balance between long and short range contracts and correct price signals. Demand response was hardly considered in terms of buyback programs, real-time pricing, curtailable load and other peak load management options.
Now FERC Chairman Pat Wood and Commissioner Brownell are on board with demand response. Commission Massey noted as evidence the current FERC Working Paper on Standardized Transmission Service and Wholesale Electric Market Design, also known as the standard market design (SMD) paper.
Of the eleven SMD principles he pointed to several that encourage demand response. Principle 6 for example suggests: "Demand resources and intermittent supply resources should be able to participate fully in energy, ancillary services and capacity markets."
Commissioner Massey concluded that FERC "gets it now" with demand response and is committed to policies that help. However, he notes that FERC cannot make it happen alone and that states must get on board as well.
Texas Steps Up
Fortunately, Commissioner Brett Perlman of the Texas Public Utility Commission (PUC) was at the Dallas meeting to answer the federal challenge. The Texas PUC hopes to facilitate progress for demand response with activities in comparable open access, standard policies and rates for transmission pricing, common interconnection requirements, and tariffs that recognize the potential for backup generation. He believes that demand response is still a "work in progress" pending improvements in load profiling, small customer participation and competitive metering. But in the long term, Commissioner Perlman believes "there is money to be made in demand response."
In the short term, demand response will be valuable in relieving congestion along certain transmission corridors in Texas, according to Brian Lloyd, a staff member of the Texas PUC. Lloyd characterized Texas as a "buyers market" with sufficient generation capacity now. One result is that since the beginning of this year with retail choice, energy bill savings have been achieved by all customer classes. In one dramatic example, Texas Instruments switched from being one of the largest customers of TXU to one of the largest customers of Reliant and saved 20%. As demand comes back into balance with supplies, Lloyd expects demand response to participate in all the markets including ancillary services to maintain system reliability.
Customers Have Final Word
Demand response ultimately depends on end-use customers for its success. Thus it was appropriate that customers had the final word at the PLMA conference.
Jim Laird of Home Depot discussed their demand response participation in California, Illinois and New York, primarily by turning off certain lights. The main reason for participating was that the energy service provider came to Home Depot with a turnkey package including applying for the program, communications, measurement and settlement of payments. This makes it easy to participate, since Home Depot does not have the staff to study each program and analyze the costs and benefits.
While participating in the demand response programs, the stores took advantage of the public relations benefits by advertising their cooperation. Yet the challenge remains that individual store managers and staff override the savings by turning lights back on before the curtailment period ends unless educated and supportive of demand response.
Alan Rose of JC Penney reported on their limited ability to participate in demand response. Their stores have so many different systems, vintages, equipment configurations and control systems as to make it difficult to volunteer groups of stores. In contrast, Home Depot has standard store designs and energy management control systems subject to remote operations. Rather than focus on peak demand management, JC Penney focuses on energy efficiency upgrades when equipment needs replacing.
For the New York State situation, Bob Loughney welcomes demand response on behalf of the group of large industrial accounts he represents. One reason is that demand response helps mitigate the market power of the big generation companies. He finds that the advent of retail choice has encouraged demand response relative to the "command and control" days of the incumbent monopoly utilities. However, he warns that for demand response to be successful, customers must be allowed in the working groups planning these programs. Otherwise, the bureaucrats design programs too complicated for customer participation.
In summarizing the conference, Ross Malme, Chairman of the Peak Load Management Alliance, noted how far PLMA has come in three short years to be the "most respected voice in demand response by bringing together the best minds to address policy and operating issues."
Note: Peak Load Management Alliance (http://www.peaklma.com) includes companies in electric generation, retail energy services, load aggregation, power exchange, demand response systems, metering equipment, grid operations, market management and information technologies.