Demand Response Feud Builds

on June 15, 2011 at 4:00 PM

started with a brilliant idea: enable energy efficient electricity customers to get paid for their efforts.

The company’s business model uses demand response meters to measure energy consumption on a minute-by-minute basis, allowing energy consumers to limit usage during peak demand times and thereby earn money by not using energy.

The idea is simple enough if the technology is correctly incorporated, but recent regulatory challenges to the concept of real-time pricing for demand response have highlighted reasons for caution when it comes to demand response firms.

PJM Interconnect, which manages the market for power on much of the East Coast transmission grid, has said that demand response pricing should be based not on minute-to-minute pricing but on pricing from the previous year. It has changed pricing rules to reduce potential profits earned from unused energy.

“The change in the rule is to clarify what the baseline for measuring demand shift for capacity [that] has actually taken place and to ensure that a reduction is not counted twice,” PJM spokesperson Ray Dotter told Breaking Energy.

He said that prices must be measured over the long term because energy reductions occur all the time as part of the natural ebb and flow of energy use. For example, minute-to-minute measurements might reward a consumer for reducing at night, when the generators are already operating at lower than peak capacity.

“Don’t confuse energy, which is real time with capacity which is longer term,” Dotter said. “Capacity is procured in advance, some time in advance, based upon a projected peak demand and therefore determining it needs to be based on taking that longer term look.”

Regional transmission organizations (RTO) like PJM are charged with maintaining transmission grid equilibrium to guarantee reliability and a functioning electricity market. Adding demand response pricing into that balance could complicate an already multifaceted electrical ecosystem.

Demand response firms say they can preserve reliability and market functioning while delivering savings for consumers.

EnerNOC president and co-founder, David Brewster, said that he is proud of his company’s advanced technology which can measure minute-by-minute prices and energy usage.

“The approach that we have advocated for, we believe is a much more accurate measure,” Brewster told Breaking Energy, as opposed to the longer term estimates. He said that his product excels at engaging the consumers by providing them with the most accurate possible data.

PJM stands by its recommended approach.

“The overwhelming majority of PJM members from all sectors, recognize the need to clarify this, as did many direct response companies, many of whom filed with the commission in terms of the rule change,” he said.

Dotter said that PJM is very supportive of demand response (DR) projects, as long as they take into account the longer-term pricing assessments.

“We’ve instituted numerous rules and procedures to facilitate DR and to expand capacity markets,” he said, noting that use of demand response has steadily increased in the grid over the last few years.

The Federal Energy Regulatory Commission (FERC), which regulates cross-state transmission lines and is the ultimate arbiter for most policy direction that impacts rules set by regional transmission organizations is still grappling with the issue of demand response. Last Friday it issued a document that suspends the PJM price changes for five months pending further review.

“Under the law we have to ensure that rates are just and reasonable and under the law we couldn’t,” said FERC Media Relations Specialist Craig Cano.