Last week, FERC issued a final rule amending regulations under the Federal Power Act regarding Demand Response Compensation in Organized Wholesale Energy Markets, putting an end to industry speculation over the value of demand response…hopefully. Regional Transmission Organizations (“RTO”) and Independent System Operators (“ISO”) must balance generation and load when clearing the day-ahead and real-time energy markets. Balancing can be accomplished by changes in supply or demand. The Commission found that in the organized wholesale energy market, demand response has the same balancing effect on supply and demand as generation. Therefore, demand response resources should be compensated on an equal basis to generation resources. However, two conditions must be met:
- The demand response resource has the capability to provide the service, i.e., the demand response resource must be able to displace a generation resource in a manner that serves the RTO or ISO in balancing supply and demand.
- The payment of LMP for the provision of the service by the demand response resource must be cost-effective as determined by the net benefits test.
What is the net benefits test? When is a demand response cost-effective? We will have to wait a little longer to completely answer these questions. RTOs/ISOs are ordered to conduct two studies: By July 22, 2011, RTOs/ISOs must submit an historical analysis of supply curves and revised tariffs. More than a year later by September 21, 2012, a dynamic benefits study must be filed. While time may not be a friend, EnerNOC is having an awesome month at FERC!