July 14, 2011

Demand response and the smart grid have finally reached a “critical mass” -- to where they are moving beyond a niche product to the mainstream, FERC Chairman Jon Wellinghoff said yesterday.  The government, utilities and third-party firms are all starting to pay more attention and focus more resources on DR and the smart grid -- and the broader industry is poised for even more success, the chairman said at the National Town Meeting on Demand Response & Smart Grid yesterday.

          The DR and smart grid will take off, as did the solar industry which grew in the last five years “at a 30-40% growth clip,” said Wellinghoff.  “I think we're going to see the same thing in the demand response industry.”

          The last couple years saw lots of infrastructure roll out due to the stimulus funds and now Comverge is focusing much more of its attention on enabling the use of that infrastructure, said its CEO Blake Young.

          The DR business reminds him of the early days of natural gas deregulation in the ‘80s with conversations on comparability of service, differentiation of services and measurement and verification debates all echoing earlier issues, he added.  “It's almost like looking in a mirror some 20 years later with an industry that's moving more rapidly than what we saw in the natural gas unbundling years,” said Young.

          FERC Commissioner Cheryl LaFleur agreed that DR has come a long way since she used to run the New England Electric System's programs 20 years ago.  “In the early days -- like ‘91, ‘92 -- I used to speak all around the country and I felt a little bit like a freak show, you know the lady who ate fire or something,” said LaFleur speaking later in the day.  “‘Here's somebody who tries to get her customers to use less electricity.'”  

But now efficiency and DR are respected on both sides of the aisle and used all around.

          FERC has been tackling more and more “nitty gritty” details for DR such as its final rule on compensation in energy markets and a proposal to pay fast responding resources more in regulation markets.

          Capacity markets have seen huge amounts of DR bid into them.  PJM, the largest power market in the world -- is the leader with 14,000 MW.  MISO is poised to submit a capacity market filing this Friday to FERC and Wellinghoff shared some thoughts on that.

            Chairman compares ISOs

          “We need to ensure that demand response is as integral a part of the capacity market in MISO as it is in PJM and without participation by demand response providers and others in that docket, it won't happen,” he predicted.

          The issue of DR in the Midwest is complicated since most states in MISO's footprint have kept aggregators from directly dealing with customers, as FERC let them do in Order 719.

          “I am concerned by that commission, and other commissions in the Midwest, limiting the choices of consumers to participate with demand response aggregators in wholesale markets is going to limit the customers' overall choices to integrate demand response into their systems,” said Wellinghoff.

          He hopes FERC and DOE can help convince states to start allowing direct participation in DR programs for customers.  “I am not going to be very amenable to agreeing to capacity market in the Midwest unless and until there is full participation in the DR side, which would include the ability of DR aggregators to go into the Midwest and fully participate with those customers,” he added.

            California plan is evolving

          The Midwest is not the only place where states have some disagreement with FERC over DR.  California wants to keep a different compensation method in the energy market than what the commission recently approved, said the PUC's Smart Grid Lead Staffer Chris Villarreal.

          The California ISO only recently got its “proxy demand response” product running and that left compensation questions to the PUC.  The commission decided to take out the generation price that customers avoid paying by not using power. 

That concept triggered a big debate in FERC's compensation docket and the federal regulator ultimately decided to pay DR full LMP without any generation charge removed during peak hours.

          California might be pushing back on DR compensation but it is pushing ahead with smart meters and dynamic pricing.  All C&I customers default to critical peak pricing, Villarreal told us after the talk.  Smaller commercial and residential customers are not allowed to go into critical peak pricing until 2013 due to state laws but all of the utilities have open proceedings looking into doing that now. 

The PUC cannot put customers into real-time pricing until 2020 under the law, said Villarreal.