Restructuring Today
December 21, 2005

NEMA: Power markets need to value demand response

Customers need to have the ability to make well-informed choices about conserving or shifting power use, NEMA wrote FERC about its survey on demand response (RT, 11/4).

          Choices require time-based, market price signals, the marketers added.

          Real-time pricing benefits all customers, NEMA observed, even if only available for large C&Is.

          If enough large users cut their use at peak times, total demand is cut, lowering upward pressures on prices.

          ISO New England favors imposing dynamic pricing for default retail customers 1 mw and larger.

          States can expand dynamic pricing to smaller customers based on how it works for big customers, the ISO wrote.

          A small amount of demand response can go a long way in easing wholesale prices during shortages, the Midwest ISO added.

          Demand response needs to be a permanent feature of power markets and not tied to temporary, emergency programs, the Steel Manufacturers Assn wrote.

          Customers need to know that demand response will be a fixed part of the market.

          That way, they can invest in equipment for demand lowering, the association added.

          Data from high-tech meters should be a public good available at a nominal cost so information can benefit the customers who paid for it, NEMA urged.

          Should demand response be used in resource adequacy planning?

          Yes, said NEMA.

          Market-based conservation, DG and load-shifting measures can lower power prices without imposing market-distorting price caps, NEMA argued.

          NEMA favors competition between demand- and supply-side resources and thinks demand response can be a cost-effective, short-term solution to generation and grid constraints.

          Standards should be created for the sale of demand so it can become a liquid, tradable commodity, NEMA advocates.

          Demand response negawatts should be aggregated, dispatched and priced as transparently as megawatts, they added.

          MISO estimates it could potentially have 5,000-10,000 mw in demand-side resources if demand response counted towards resource adequacy.

          ISO New England is testing whether small demand response customers can provide operating reserves and to find less costly ways to dispatch and measure services.

          What's blocking demand response?

          Fears of stranded costs and lost revenue for utilities and T&D firms, Demand Response & Advanced Metering Coalition (DRAM) responded.

          Utilities have historically made more money by investing in building rate base plants but now demand response can cut the need for new capacity, DRAM noted.

          Distribution companies need regulatory certainty that their grid investments won't be lost to lower throughput, DRAM added.

          DRAM favors utilities' getting incentives to boost demand response and advanced metering.

          Utilities, in DRAM's view, have the ability to make all of the elements of the program work well, including customer education, marketing and billing.

          Rate freezes have hurt price signals and don't encourage customers to become educated about their use, NEMA added.

          But demand response costs shouldn't exceed the costs of comparable supply resources, EEI cautioned.

          EEI claims it doesn't make sense to make every customer price responsive when the benefits of price response are outweighed by implementation costs.

          Some customers may resist dynamic pricing, EEI added, favoring more stable rates.

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