Demand Response Post-EPSA:
Options for Action
Scott Hempling, Attorney at Law
Restructuring Roundtable:
The Future of Demand Response in
New England
November 21, 2014
www.scotthemplinglaw.com
[email protected]
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Background: The D.C. Circuit held that FERC has no
power to order (or approve regional transmission organization
tariffs requiring) buyers of energy in RTO-organized markets to
compensate retail consumers for demand response. The Court's
reasoning seemed to have two prongs: (1) FERC cannot order
compensation to retail consumers for any product, because it has
no jurisdiction over "retail markets"; and (2) FERC cannot order
compensation for demand response, because demand response is
not a FERC-jurisdictional product.
This outline organizes the actions according to the major
regulatory actors: FERC, RTOs, states.
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I. FERC Actions
A. Continue Order 745 compensation for the sale of demand
response, but limit the lawful sellers to entities other than
retail consumers. Problem: While compensation will go
to entities other than retail customers, the compensation is
still for a non-FERC-jurisdictional product.
B. Condition the wholesale generators' right to charge
market-based rates in RTO markets on the existence of
sufficient demand response participation in those markets.
FERC would not be entering the states' exclusive domain;
FERC would be acting within its own exclusive
domain-establishing the market conditions for just and
reasonable wholesale rates.
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I. FERC Actions (cont.)
C. Condition LSEs' right to buy wholesale energy on their
certifying that their demand is dampened by all
cost-effective demand response.
D. Characterize demand response, under certain conditions,
as a component of FERC-jurisdictional transmission
service; i.e., treat demand response as ancillary service.
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II. RTO Actions
A. Move the demand response transaction from the supply side to
the demand side. Each LSE would certify to the RTO its
control of a verifiable quantity of demand response for a
particular hour. Its demand for that hour then would be
reduced. The challenge: How would we induce LSEs to play?
1. We could hope that each LSE participates voluntarily.
2. RTO could condition LSE's right to buy in RTO energy
markets unless its demand level reflects cost-effective
demand response.
3. States could induce their LSEs to bring cost-effective
demand response to the RTO market, or face prudence
disallowance. (See below)
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II. RTO Actions (cont.)
B. Move the market for demand response outside of FERC
jurisdiction. RTOs can set up hot dog stands and REC
markets; both are outside FERC jurisdiction. They can do
the same for demand response. Problem: Just because an
RTO builds a hot dog stand doesn't mean anyone will
come.
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III. State Actions
A. Decide the market structure for demand response.
("Market structure" means: Who are the buyers and
sellers, and what products are they buying and selling?)
Here are the options (see attached diagram):
1. Utility acts as exclusive retail load manager: The
utility buys demand response from its retail
consumers, using it to manage its own load, without
any resale into the RTO market.
2. Utility acts as exclusive aggregator and reseller:
Utility buys demand response from its retail
consumers, then resells the aggregated amounts into
the RTO market, passing the proceeds back to the
consumers.
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III. State Actions (cont.)
3. Non-utility aggregators aggregate, acting as the retail
utility's agents. Utility then uses this demand
response to manage its own load, including submitting
the DR to the RTO market.
4. Non-utility entities act as independent aggregators
(rather than as the utility's agent), buying demand
response from retail consumers, then reselling the
aggregated amounts into the RTO market. Not clear if
this option survives the court decision.
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III. State Actions (cont.)
B. Decide what constitutes prudent utility behavior in the
context of demand response: What cost-effective actions,
in the area of demand response, must a utility take to
avoid imprudence disallowance for failure to protect
consumers from excess costs?
C. File FERC complaints against specific generators'
market-based prices, where those prices are being set
without the discipline of demand response.
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III. State Actions (cont.)
D. Create multistate markets for demand response, in which
a given demand is determined for the region, with
tradable certificates issued for reductions below that level.
The broader the market, the greater the opportunity to
meet the desired level cost-effectively.
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Market Structures for Demand Response: Six State Options
RTO Market
Utility without
DR program
1
Utility as retail
load manager
2
Retail
Consumers
Wholesale
Sellers
Buyers
S9
High Price
B9
S8
B8
S7
B7
S6
B6
S5
B5
S4
B4
S3
B3
S2
B2
5b
3
4a
5a
Wholesale
Utility as DR
aggregator
Non‐utility DR
aggregator
4b
5d
5c
6a
6b
S1
DR sales transaction
Agency relationship
Low Price
B1