Demand Response Compensation in Organized Wholesale Energy Markets, 15362-15371 [2010-6478]
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Federal Register / Vol. 75, No. 59 / Monday, March 29, 2010 / Proposed Rules
Docket No. 10–ANE–10.’’ The postcard
will be date/time stamped and returned
to the commenter.
All communications received before
the specified closing date for comments
will be considered before taking action
on the proposed rule. The proposal
contained in this notice may be changed
in light of the comments received. A
report summarizing each substantive
public contact with FAA personnel
concerned with this rulemaking will be
filed in the docket.
Availability of NPRMs
An electronic copy of this document
may be downloaded from and
comments submitted through https://
www.regulations.gov. Recently
published rulemaking documents can
also be accessed through the FAA’s Web
page at https://www.faa.gov/
airports_airtraffic/air_traffic/
publications/airspace_amendments/.
You may review the public docket
containing the proposal, any comments
received, and any final disposition in
person in the Dockets Office (see the
ADDRESSES section for address and
phone number) between 9 a.m. and 5
p.m., Monday through Friday, except
Federal Holidays. An informal docket
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30337.
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srobinson on DSKHWCL6B1PROD with PROPOSALS
The Proposal
The FAA is considering an
amendment to Title 14, Code of Federal
Regulations (14 CFR) part 71 to remove
Class E airspace at Brunswick, ME to
eliminate controlled airspace not
required as the airport has closed, and
to establish Class E airspace at
Wiscasset, ME, to provide controlled
airspace required to support the SIAPs
for Wiscasset Airport. The Class E
airspace extending upward from 700
feet above the surface would be
established for the safety and
management of IFR operations.
Class E airspace designations are
published in Paragraph 6005 of FAA
order 7400.9T, signed August 27, 2009,
and effective September 15, 2009, which
is incorporated by reference in 14 CFR
71.1. The Class E airspace designation
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listed in this document will be
published subsequently in the Order.
The FAA has determined that this
proposed regulation only involves an
established body of technical
regulations for which frequent and
routine amendments are necessary to
keep them operationally current. It,
therefore, (1) Is not a ‘‘significant
regulatory action’’ under Executive
Order 12866; (2) is not a ‘‘significant
rule’’ under DOT Regulatory Policies
and Procedures (44 FR 11034; February
26, 1979); and (3) does not warrant
preparation of a Regulatory Evaluation
as the anticipated impact is so minimal.
Since this is a routine matter that will
only affect air traffic procedures and air
navigation, it is certified that this
proposed rule, when promulgated,
would not have a significant economic
impact on a substantial number of small
entities under the criteria of the
Regulatory Flexibility Act.
The FAA’s authority to issue rules
regarding aviation safety is found in
Title 49 of the United States Code.
Subtitle I, section 106 describes the
authority of the FAA Administrator.
Subtitle VII, Aviation Programs,
describes in more detail the scope of the
agency’s authority. This proposed
rulemaking is promulgated under the
authority described in subtitle VII, part,
A, subpart I, section 40103. Under that
section, the FAA is charged with
prescribing regulations to assign the use
of airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This proposed regulation is
within the scope of that authority as it
would remove Class E airspace at
Brunswick NAS Airport, Brunswick,
ME, and establish Class E airspace at
Wiscasset Airport, Wiscasset, ME.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
The Proposed Amendment
In consideration of the foregoing, the
Federal Aviation Administration
proposes to amend 14 CFR part 71 as
follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND CLASS E AIRSPACE
AREAS; AIR TRAFFIC SERVICE
ROUTES; AND REPORTING POINTS
1. The authority citation for part 71
continues to read as follows:
Authority: 49 U.S.C. 106(g); 40103, 40113,
40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959–
1963 Comp., p. 389.
§ 71.1
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of Federal Aviation
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Administration Order 7400.9T, Airspace
Designations and Reporting Points,
signed August 27, 2009, effective
September 15, 2009, is amended as
follows:
Paragraph 6005 Class E Airspace Areas
Extending Upward From 700 Feet or More
Above the Surface of the Earth.
*
*
*
ANE ME E5
*
*
*
*
Brunswick, ME [REMOVED]
*
*
*
ANE ME E5 Wiscasset, ME [NEW]
Wiscasset Airport, ME
(Lat. 43°57′40″ N., long. 69°42′45″ W.)
That airspace extending upward from 700
feet above the surface within a 6.3-mile
radius of the Wiscasset Airport and within 2
miles each side of the 232° bearing from the
airport, extending from the 6.3-mile radius to
10.2 miles southwest of the airport and
within 2 miles each side of the 052° bearing
from the airport, extending from the 6.3-mile
radius to 9.8 miles to the northeast of the
airport.
Issued in College Park, Georgia, on March
16, 2010.
Michael Vermuth,
Acting Manager, Operations Support Group,
Eastern Service Center, Air Traffic
Organization.
[FR Doc. 2010–6810 Filed 3–26–10; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 35
[Docket No. RM10–17–000]
Demand Response Compensation in
Organized Wholesale Energy Markets
March 18, 2010.
AGENCY: Federal Energy Regulatory
Commission, Energy.
ACTION: Notice of proposed rulemaking.
SUMMARY: The Federal Energy
Regulatory Commission is issuing a
Notice of Proposed Rulemaking (NOPR)
proposing an approach for
compensating demand response
resources in order to improve the
competitiveness of organized wholesale
energy markets and thus ensure just and
reasonable wholesale rates. The
Commission invites all interested
persons to submit comments in
response to the regulatory text proposed
herein.
DATES: Comments are due May 13, 2010.
ADDRESSES: You may submit comments,
identified by docket number by any of
the following methods:
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Federal Register / Vol. 75, No. 59 / Monday, March 29, 2010 / Proposed Rules
• Agency Web Site: https://ferc.gov.
Documents created electronically using
word processing software should be
filed in native applications or print-toPDF format and not in a scanned format.
• Mail/Hand Delivery: Commenters
unable to file comments electronically
must mail or hand deliver an original
and 14 copies of their comments to:
Federal Energy Regulatory Commission,
Secretary of the Commission, 888 First
Street, NE., Washington, DC 20426.
Instructions: For detailed instructions
on submitting comments and additional
information on the rulemaking process,
see the Comment Procedures Section of
this document.
FOR FURTHER INFORMATION CONTACT:
Arnie Quinn, Federal Energy Regulatory
Commission, Office of Energy Policy
& Innovation, 888 First Street, NE.,
Washington, DC 20426. (202) 502–
8693. arnie.quinn@ferc.gov.
Helen Dyson, Federal Energy Regulatory
Commission, Office of the General
Counsel, 888 First Street, NE.,
Washington, DC 20426. (202) 502–
8856. helen.dyson@ferc.gov.
SUPPLEMENTARY INFORMATION:
130 FERC ¶ 61,213, PJM
Interconnection, LLC, Docket No. EL09–
68–000
Notice of Proposed Rulemaking
Table of Contents
Paragraph
Numbers
I. Background ............................................................................................................................................................................................
A. Role of Demand Response in Organized Wholesale Energy Markets .......................................................................................
B. Current ISO and RTO Demand Response Programs ...................................................................................................................
C. The Need for Reform ....................................................................................................................................................................
II. Discussion ............................................................................................................................................................................................
III. Information Collection Statement ......................................................................................................................................................
IV. Environmental Analysis .....................................................................................................................................................................
V. Regulatory Flexibility Act Certification .............................................................................................................................................
VI. Comment Procedures .........................................................................................................................................................................
VII. Document Availability ......................................................................................................................................................................
srobinson on DSKHWCL6B1PROD with PROPOSALS
1. The Federal Energy Regulatory
Commission (Commission) is proposing
to revise its regulations to establish the
approach described below as
compensation for demand response 1
resources 2 participating in organized
energy markets. We propose that
Independent System Operators (ISOs)
and Regional Transmission
Organizations (RTOs) 3 with tariff
provisions permitting demand response
providers to participate as resources in
energy markets by reducing
consumption of electricity from their
expected levels in response to price
signals be required to pay to demand
response providers, in all hours, the
market price for energy for such
reductions.4
1 Demand response means a reduction in the
consumption of electric energy by customers from
their expected consumption in response to an
increase in the price of electric energy or to
incentive payments designed to induce lower
consumption of electric energy. 18 CFR 35.28(b)(4).
2 Demand response resource means a resource
capable of providing demand response. 18 CFR
35.28(b)(5).
3 The following RTOs and ISOs have organized
wholesale electricity markets: PJM Interconnection,
LLC (PJM); New York Independent System
Operator, Inc. (NYISO); Midwest Independent
Transmission System Operator, Inc. (Midwest ISO);
ISO New England, Inc. (ISO–NE); California
Independent System Operator Corp. (CAISO); and
Southwest Power Pool, Inc. (SPP).
4 This provision applies only to demand response
acting as a resource in organized wholesale energy
markets. The provision will not apply to demand
response under programs that ISOs and RTOs
administer for reliability or emergency conditions,
such as, for instance, Midwest ISO’s Emergency
Demand Response; NYISO’s Emergency Demand
Response Program; PJM’s Emergency Load
Response; and ISO–NE’s Real-Time 30-Minute
Demand Response Program, Real-Time and 2-Hour
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I. Background
A. Role of Demand Response in
Organized Wholesale Energy Markets
2. The Commission has acted over the
last several decades to implement
Congressional policy to expand the
wholesale energy markets to facilitate
entry of new resources and support
competitive markets. Most recently, the
Commission in Order No. 719
implemented a series of reforms aimed
at improving the competitiveness of the
organized energy markets, finding that
effective wholesale competition protects
consumers by, among other things,
providing more supply options,
encouraging new entry and innovation,
and spurring deployment of new
technologies.5 Improving the
competitiveness of organized wholesale
markets, the Commission concluded, is
therefore ‘‘integral to the Commission
fulfilling its statutory mandate to ensure
supplies of electric energy at just,
reasonable, and not unduly
discriminatory or preferential rates.’’ 6
Demand Response Program, and Real-Time Profiled
Response Program. This provision also will not
apply to compensation in ancillary services
markets, which the Commission has addressed
elsewhere. See e.g., Wholesale Competition in
Regions with Organized Electric Markets, Order No.
719, 73 FR 64,100 (Oct. 28, 2008), FERC Stats. &
Regs. P 31,281 (2008) (Order No. 719 or Final Rule).
5 See Order No. 719 at P 1; see also Regional
Transmission Organizations, Order No. 2000, FERC
Stats. & Regs. ¶ 31,089, at P 1 (1999), order on reh’g,
Order No. 2000–A, FERC Stats. & Regs. ¶ 31,092
(2000), aff’d sub nom. Pub. Util. Dist. No. 1 of
Snohomish County, Washington v. FERC, 272 F.3d
607, 348 U.S. App. D.C. 205 (DC Cir. 2001).
6 Order No. 719 at P 1.
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32
33
41
45
3. As the Commission recognized in
Order No. 719, active participation by
customers in organized wholesale
energy markets through demand
reductions helps to increase
competition in those markets.7 Demand
reductions whereby customers reduce
electricity consumption from normal
usage levels in response to price signals
can generally occur in two ways: (1)
Customers reduce demand by
responding to dynamic rates that are
based on wholesale prices (sometimes
called ‘‘price-responsive demand’’); and
(2) customers can provide demand
response that acts as a resource in
wholesale markets to balance supply
and demand. While a number of States
and utilities are pursuing retail-level
price-responsive demand initiatives
based on dynamic and timedifferentiated retail prices and utility
investments, these are State initiatives,
and, thus, are not the subject of this
proceeding.8 Our focus here is on
customers providing—through bids—
demand response that acts as a resource
in organized wholesale energy markets.
4. Demand response acting as a
resource in organized wholesale energy
markets helps to improve the
functioning and competitiveness of such
markets in several ways. First, demand
response can lower prices. When bid
directly into the wholesale market,
demand response—which results in
7 See
Order No. 719 at P 48.
ISOs and RTOs are engaged in stakeholder
discussions concerning the coordination necessary
between wholesale markets and retail rate design,
and we expect to address any filings emerging from
those discussions in future proceedings.
8 Some
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srobinson on DSKHWCL6B1PROD with PROPOSALS
lower demand—can result in lower
clearing prices.9 For example, a study
conducted by PJM, which simulated the
effect of demand response on prices,
demonstrated that a modest three
percent load reduction in the 100
highest peak hours corresponds to a
price decline of six to 12 percent.10
Demand response can also lower prices
in the organized wholesale energy
markets by reducing the need to
dispatch higher-priced generation, or
construct new generation, in an effort to
satisfy load.11 Second, demand response
can mitigate generator market power.12
This is because the more demand
response is able to reduce demand, the
more downward pressure it places on
generator bidding strategies by
increasing the risk to a supplier that it
will not be dispatched if it bids a price
that is too high.13 Third, demand
response has the potential to support
system reliability and address resource
adequacy 14 and resource management
9 Wholesale Competition in Regions with
Organized Electric Markets, Order No. 719–A, FERC
Stats. & Regs. ¶ 31,292 (2009).
10 ISO–RTO Council Report, Harnessing the
Power of Demand: How ISOs and RTOs Are
Integrating Demand Response into Wholesale
Electricity Markets, found at https://www.isorto.org/
atf/cf/%7B5B4E85C6-7EAC-40A0-8DC3003829518EBD%7D/IRC_DR_Report_101607.pdf.
11 Id. (‘‘Demand response tends to flatten an area’s
load profile, which in turn may reduce the need to
construct and use more costly resources during
periods of high demand; the overall effect is to
lower the average cost of producing energy.’’).
Similarly, NYISO ‘‘has experienced a significant
increase in the registration of the [demand
response] programs that have effectively reduced
the need for additional [generation] capacity
resources to the system based on customer pledges
to cut energy usage on demand.’’ See NYISO’s 2009
Comprehensive Reliability Plan at 3, found at
https://www.nyiso.com/public/webdocs/newsroom
/planning_reports/CRP__FINAL_5-19-09.pdf.
12 See Comments of NYISO’s Market Monitor
filed in Docket No. ER09–1142–000, May 15, 2009
(Demand response ‘‘contributes to reliability in the
short-term, resource adequacy in the long-term,
reduces price volatility and other market costs, and
mitigates supplier market power.’’).
13 Id.
14 See ISO–RTO Council Report, Harnessing the
Power of Demand: How ISOs and RTOs Are
Integrating Demand Response into Wholesale
Electricity Markets at 4, found at https://
www.isorto.org/atf/cf/%7B5B4E85C6-7EAC-40A08DC3-003829518EBD%7D/
IRC_DR_Report_101607.pdf (‘‘Demand response
contributes to maintaining system reliability. Lower
electric load when supply is especially tight
reduces the likelihood of load shedding.
Improvements in reliability mean that many
circumstances that otherwise result in forced
outages and rolling blackouts are averted, resulting
in substantial financial savings. * * *’’); Smart Grid
Policy, 126 FERC ¶ 61,253, at P 19 and n.23 (2009)
(‘‘The Smart Grid concept envisions a power system
architecture that permits two-way communication
between the grid and essentially all devices that
connect to it, ultimately all the way down to large
consumer appliances. * * * Once that is achieved,
a significant proportion of electric load could
become an important resource to the electric
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challenges surrounding the unexpected
loss of generation.15
5. Given its ability to lower electricity
prices and ensure reliability, demand
response can play a critical role in
helping the Commission fulfill its
mandate under the Federal Power Act
(FPA) to ensure that rates charged for
energy are just and reasonable.16
Accordingly, and consistent with
national policy requiring facilitation of
demand response,17 the Commission
has acted to remove barriers to
participation of demand response
resources in organized wholesale
electricity markets. For example, in
Order No. 890, the Commission
modified the pro forma Open Access
Transmission Tariff to allow nongeneration resources, including demand
response resources, to be used in the
provision of certain ancillary services
where appropriate on a comparable
basis to service provided by generation
resources.18 Order No. 890–A further
requires transmission providers to
develop transmission planning
processes that treat all resources,
including demand response, on a
comparable basis.19
6. The Commission built on these
reforms in Order No. 719, requiring
ISOs and RTOs to, among other things,
accept bids from demand response
resources in their markets for certain
ancillary services on a basis comparable
to other resources.20 The Commission
also required each ISO and RTO ‘‘to
reform or demonstrate the adequacy of
its existing market rules to ensure that
the market price for energy reflects the
system, able to respond automatically to customerselected price or dispatch signals delivered over the
Smart Grid infrastructure without significant
degradation of service quality.’’).
15 For instance, in ERCOT, on February 26, 2008,
through a combination of a sudden drop in power
supplied by wind generators, a quicker-thanexpected ramping up of demand, and the loss of
thermal generation, ERCOT found itself short of
reserves. The system operator called on all demand
response resources, and 1200 MW of Load acting as
Resource (LaaRs) responded within ten minutes,
bringing ERCOT back into balance, from 59.85 Hz
back to 60 Hz.
16 16 U.S.C. 824d (2006).
17 See EPAct 2005, Public Law 109–58, § 1252(f),
119 Stat. 594, 965 (2005) (‘‘It is the policy of the
United States that * * * unnecessary barriers to
demand response participation in energy, capacity,
and ancillary service markets shall be eliminated.’’).
18 Preventing Undue Discrimination and
Preference in Transmission Service, Order No. 890,
FERC Stats. & Regs. ¶ 31,241 at P 887–88 (2007),
order on reh’g, Order No. 890–A, FERC Stats. &
Regs. ¶ 31,261 (2007), order on reh’g and
clarification, Order No. 890–B, 73 FR 39092 (Jul. 8,
2008), 123 FERC ¶ 61,299 (2008), order on reh’g,
Order No. 890–C, 126 FERC ¶ 61,228 (2009), order
on clarification, Order No. 890–D, 129 FERC
¶ 61,126 (2009).
19 Order No. 890–A at P 216.
20 Order No. 719 at P 47–49.
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value of energy during an operating
reserve shortage,’’ 21 for purposes of
encouraging existing generation and
demand resources to continue to be
relied upon during an operating reserve
shortage, and encouraging entry of new
generation and demand resources.22
B. Current ISO and RTO Demand
Response Programs
7. In addition to the foregoing efforts,
the Commission has issued orders in
recent years approving various types of
ISO and RTO demand response
programs. As noted above, some of these
programs are administered for reliability
and emergency conditions. Apart from
these programs, wholesale customers
and qualifying large retail customers
may bid demand response directly into
the day-ahead and real-time energy
markets, certain ancillary service
markets and capacity markets.23
Demand response providers
participating as resources in the dayahead and real-time energy markets are
the subject of this proceeding.
8. With particular regard to demand
response compensation for this latter
category of resources, the Commission
previously has allowed a system-bysystem approach, whereby each RTO
and ISO has developed its own
compensation methodologies for
demand response resources in its energy
market. As a result, the levels of
compensation for demand response vary
significantly among RTOs and ISOs.
PJM pays the Locational Marginal Price
(LMP) 24 minus the generation and
transmission portions of the retail rate.25
ISO–NE and NYISO currently pay LMP
21 Id.
P 194.
P 247.
23 Other demand response programs allow
demand response to be used as a capacity resource
and as a resource during system emergencies or
permit the use of demand response for
synchronized reserves and regulation service. See,
e.g., PJM Interconnection, LLC, 117 FERC ¶ 61,331
(2006); Devon Power LLC, 115 FERC ¶ 61,340, order
on reh’g, 117 FERC ¶ 61,133 (2006), appeal pending
sub nom., Maine Pub. Utils. Comm’n v. FERC, No.
06–1403 (DC Cir. 2007); New York Indep. Sys.
Operator., Inc., 95 FERC ¶ 61,136 (2001); NSTAR
Services Co. v. New England Power Pool, 95 FERC
¶ 61,250 (2001); New England Power Pool and ISO
New England, Inc., 100 FERC ¶ 61,287, order on
reh’g, 101 FERC ¶ 61,344 (2002), order on reh’g, 103
FERC ¶ 61,304, order on reh’g, 105 FERC ¶ 61,211
(2003); PJM Interconnection, LLC, 99 FERC ¶ 61,227
(2002).
24 LMP refers to the price calculated by the ISO
or RTO at particular locations or electrical nodes
within the ISO or RTO footprint and is used as the
market price to compensate generators. There are
variations in the way ISOs and RTOs calculate
LMP; however, each method establishes the
marginal value of resources in that market. Nothing
in this NOPR is intended to change ISO and RTO
methods for calculating LMP.
25 PJM FERC Electric Tariff, Sixth Revised Sheet
No. 388D.01.
22 Id.
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when prices are above a threshold level,
with the levels differing between the
RTOs.26 The Midwest ISO currently has
a program that pays LMP for demand
response in the real-time energy market
when the demand response provider has
purchased the amount reduced in the
day-ahead market for energy and
ancillary services.27 CAISO pays LMP in
its participating load program that
allows qualifying resources to provide
day-ahead and real-time energy and
non-spinning reserves.28 SPP currently
has no demand response program at
all.29 ISOs and RTOs have continued to
examine the effectiveness of demand
response compensation in their
respective regions, and, as a result, the
issue of proper compensation continues
to be the subject of several
proceedings.30
C. The Need for Reform
srobinson on DSKHWCL6B1PROD with PROPOSALS
9. Despite the benefits of demand
response and various efforts by the
Commission, ISOs and RTOs to address
barriers to and compensation for
demand response participation, demand
response providers collectively play a
small role in wholesale markets. After
several years of observing demand
response participation in ISO and RTO
markets with different, and often
evolving, demand response
compensation structures, the
Commission is concerned that some
existing, inadequate compensation
structures have hindered the
26 For example, under ISO–NE’s Real Time Price
Response Program, the minimum bid is $100/MWh
and a demand response resource is paid the higher
of LMP or $100/MWh. See Section III.1.3 of the ISO
New England Transmission, Markets and Services
Tariff, Section 1 of the Second Restated New
England Power Pool Agreement. NYISO
implements a day-ahead demand response program
by which resources bid into the market at a
minimum of $75/MWh and can get paid the LMP.
See NYISO Incentivized Day-Ahead Economic Load
Curtailment Program, Fifth Revised Tariff Sheet No.
34–34A, 89.
27 See Charges and Credits for Real-Time Energy
and Operating Reserve Market Energy Purchases
and Sales Associated with Demand Response
Resources. Midwest ISO FERC Electric Tariff,
Fourth Revised Volume No. 1, Second Revised
Sheet No. 1114.
28 See section 11.2.1.1 IFM Payments for Supply
of Energy, CAISO FERC Electric Tariff.
29 However, the Commission has directed SPP to
report on ways it can incorporate demand response
into its imbalance market. Southwest Power Pool,
Inc., 114 FERC ¶ 61,289, at P 229 (2006). In its
orders addressing SPP’s compliance with Order No.
719, the Commission also directed SPP to make a
subsequent compliance filing addressing demand
response participation in its organized markets.
Southwest Power Pool, Inc., 129 FERC ¶ 61,163, at
P 51 (2009).
30 See PJM Interconnection, LLC, Docket No.
EL09–68–000; ISO New England, Inc., Docket No.
ER09–1051–000; ISO New England, Inc., Docket No.
ER08–830–000; Midwest Indep. Transmission Sys.
Operator, Inc., Docket No. ER09–1049–000.
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development and use of demand
response. The impediment has been
addressed at Commission-sponsored
technical conferences concerning
demand response, where participants
have confirmed that customers ‘‘must
have confidence that appropriate price
signals will be sustained by stable
competitive pricing structures, before
they will make an investment in
demand response.’’ 31 Some participants
have advised that demand response
quite simply will not occur without
adequate compensation.32
10. Indeed, there are indications that
demand response resources react
correspondingly to increases or
decreases in payment. PJM provides a
case study on this point. It first
implemented its Economic Load
Response Program (Economic Program)
providing for demand response
compensation in June 2002.33 Several
years later, starting in January 2008,
when PJM reduced its compensation for
demand response, settled demand
reductions began decreasing from
previous years.34 Specifically, PJM’s
Market Monitor noted that, from 2007 to
2008, following the decrease in
compensation, settled demand
reductions decreased by 36.8 percent,
from 714,200 MWh to 458,300 MWh,
and the decline has continued at least
through March 2009.35 Although the
Commission had rejected a request to
prevent the compensation decrease from
occurring as per the terms of PJM’s thenexisting tariff, the Commission
encouraged PJM and its stakeholders to
continue analyzing the effectiveness of
PJM’s demand response program with
31 Transcript of Order No. 719 technical
conference at 24, statement by James Eber, Director
of Demand Response at Commonwealth Edison,
found at https://www.ferc.gov/EventCalendar/Event
Details.aspx?ID=3994&CalType=%20&CalendarID=
116&Date=05/21/2008&View=Listview.
32 See Statements of Larry Stalica, Vice President,
Linde Energy Services, Inc. FERC Technical
Conference—Demand Response in Organized
Electric Markets, May 21, 2008, found at https://
www.ferc.gov/EventCalendar/Files/
20080521081612-Stalica,%20Linde%20Energy%20
Services.pdf. (‘‘The mere avoidance of electricity
prices often provides insufficient value to offset
these real costs. Demand response will not occur if
customers do not have an economic incentive to
reduce consumption.’’).
33 See PJM Interconnection, LLC, 99 FERC ¶
61,227 (2002). PJM’s Economic Program provided
for payment of LMP for all demand response
reductions when LMP equaled or exceeded $75/
MWh and paid LMP minus the generation and
transmission components of the retail rate when
LMP was less than $75/MWh.
34 The tariff provision providing for payment of
LMP when LMP equaled or exceeded $75/MWh
terminated by its terms on December 31, 2007, and,
since then, PJM has paid only LMP minus the
generation and transmission components of the
retail rate.
35 Monitoring Analytics, Barriers to Demand Side
Response in PJM at 22 (July 1, 2009).
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the decreased payments for demand
response.36 Based upon our own review,
the Commission is now concerned that
evidence of demand reductions in PJM,
and inadequate demand response
participation, now and in the future,
may be the result of compensation that
is no longer just and reasonable,
because, as detailed below, the existing
and varying levels of compensation
generally fail to reflect the marginal
value of demand response resources to
ISO and RTO energy markets.
II. Discussion
11. Given the importance of demand
response resources to the
competitiveness of organized wholesale
electricity markets, and based upon our
experience to date with demand
response in the ISO- and RTOadministered markets, the Commission
proposes to address compensation for
demand response resources
participating in organized wholesale
energy markets generically in this
proceeding. The Commission proposes
to add section 35.18(g)(1)(v) to our
regulations to establish a specific
compensation approach for demand
response resources participating in
organized wholesale energy markets
(such as the day-ahead and real-time
markets administered by the ISOs and
RTOs). Under the proposed section,
each Commission-approved ISO and
RTO that has a tariff provision
providing for participation of demand
response resources in its energy market
must pay demand response resources, in
all hours, the market price for energy,
i.e., full LMP, for demand reductions
made in response to price signals.37
12. The Commission proposes to take
this action generically to address issues
that are common to the RTO and ISO
markets in a coordinated manner in a
single proceeding. As discussed further
below, we believe paying demand
response resources the LMP in all hours
will compensate those resources in a
manner that reflects the marginal value
of the resource to each RTO and ISO,
comparable to treatment of generation
resources. This will improve the
competitiveness of the organized
wholesale energy markets and, in turn,
help to ensure that energy prices in
those markets are just and reasonable.
13. As explained above, we have
previously accepted a variety of ISO and
36 PJM Interconnection, LLC, 121 FERC ¶ 61,315,
at P 29 (2007).
37 This provision will not apply to programs that
ISOs and RTOs administer for reliability or
emergency conditions. In those situations, the ISO
and RTO tariffs may provide compensation that is
not necessarily related solely to energy prices but
is designed to prevent involuntary load curtailment.
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srobinson on DSKHWCL6B1PROD with PROPOSALS
RTO proposals for compensation for
demand response providers, with
different levels of payment. As we have
gained experience with these programs,
we are concerned that the current
compensation levels appear to have
become unjust and unreasonable.
Providers may submit price and
quantity bids into the organized
wholesale energy markets and the
market clears at the marginal resource
yet they fail to compensate demand
response at levels that reflect the
marginal value of the resource being
used by the RTO or ISO to balance
supply and demand. The current
wholesale compensation levels may
therefore be leading to underinvestment in demand response
resources, resulting in higher, and
unjust and unreasonable, prices in the
organized electricity markets. To help
ensure that wholesale prices in ISOs
and RTOs remain just and reasonable,
we are proposing to require each ISO
and RTO to pay the LMP to demand
response providers participating in the
organized wholesale energy markets.
14. It is a well-established practice in
the organized wholesale energy markets
to rely on LMPs to encourage efficient
behavior by market participants. The
LMP represents the value of additional
supply or reductions in consumption at
each node within the RTO or ISO and,
thus, reflects the marginal cost of the
last unit necessary to efficiently balance
supply and demand.38 The LMP is
therefore the primary mechanism for
compensating generation resources
clearing in the organized electricity
markets, which the Commission has
found encourages ‘‘more efficient supply
and demand decisions in both the short
run and long run.’’ 39
15. Given that the LMP represents the
marginal value of the resource being
used by the RTO or ISO to balance
supply and demand, it follows that the
LMP should be paid to any resource
clearing in the RTO’s or ISO’s energy
market. In balancing supply and
demand, a one megawatt reduction in
demand is equivalent to a one megawatt
increase in energy for purposes of
meeting load requirements and
maintaining a reliable electric system.
The ISO or RTO is able to avoid
38 See ISO New England, Inc., 100 FERC ¶ 61,287,
at P 71 (2002) (LMP ‘‘provide[s] appropriate price
signals indicating the value of additional resources
or conservation at each node in the transmission
system’’); Cleco Power LLC, et al., 103 FERC
¶ 61,272, at P 67 (2003) (‘‘It is widely observed that
markets work efficiently when prices reflect
marginal costs, i.e., when the market price will be
equal to the cost of bringing to market the last unit
necessary to balance supply and demand.’’).
39 See New England Power Pool, 101 FERC
¶ 61,344, at P 35 (2002).
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dispatching suppliers with higher bids,
be they generation or demand response,
by accepting a lower bid to either
reduce consumption or increase
generation. As Dr. Alfred E. Kahn noted
in a recent PJM proceeding in Docket
No. EL09–68–000, consumers offering to
reduce consumption should be induced
‘‘to behave as they would if the market
mechanisms alone were capable of
rewarding them directly for efficient
economizing.’’ 40 This is because ‘‘the
(incremental) costs saved by
curtailments in demand clearly will be
LMP—including the marginal costs of
generation. So, in the end the LMP
inducement is the economically correct
one.’’ 41 This appears to be true across
all ISOs and RTOs and, therefore, it
appears appropriate to compensate both
generation and demand response
resources participating in the organized
wholesale electricity markets at the
LMP.
16. Ultimately, the markets
themselves will determine the level of
generation and demand response
resources needed to balance energy and
demand. The level of compensation
provided to each resource, however,
affects its willingness and ability to
participate in the market.42 For
example, demand response resources
need to make investments in
technologies to enable participation in
the organized wholesale energy markets,
as well as incur costs in changing their
operations in order to provide demand
response. In those markets paying less
than the LMP to demand response
resources, such resources have less
revenues to support investment in
demand response-enabling technology
(such as metering equipment, energy
usage monitors and process controls)
necessary to enable more wholesale
market participation by demand
response resources. Where
compensation for demand response is
inadequate, demand response resources
will be hesitant to invest in demand
response devices. Compared to existing
compensation levels, paying the LMP in
all hours should allow more demand
response resources to cover their
investment costs and increase their
ability to participate in the organized
wholesale electric markets.
17. Increased levels of demand
response participation, in turn, should
lead to lower clearing prices in the
organized wholesale energy markets. As
the Commission explained in accepting
40 Kahn
Affidavit at 4.
at 3.
42 Generation and demand response resources
have the potential to earn other revenues through
bilateral arrangements, capacity markets where they
exist, and ancillary services.
41 Id.
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PJM’s Economic Load Response
Program:
Without a demand response mechanism,
[an independent system operator] is forced to
work under the assumption that all
customers have an inelastic demand for
energy and will pay any price for power.
There is ample evidence that this is not true.
Many customers, given the right tools, can
and will manage their demand. * * * A
working demand response program puts
downward pressure on price, because
suppliers have additional incentives to keep
bids close to their marginal production costs
and high supply bids are more likely to
reduce the bidder’s energy sales. Appropriate
price signals to customers thus helps to
mitigate market power as high supply bids
are more likely to reduce the bidders’ energy
sales. Suppliers thus have additional
incentive to keep bids close to their marginal
production costs.43
18. Additionally, increasing the
aggregate amount of demand response
resources in the organized wholesale
energy markets will help to move prices
closer to the levels that would result if
all demand could respond to the
marginal cost of energy. Paying the LMP
to those potential demand response
resources who are capable of
responding—but who have not been
participating as a resource due to
inadequate compensation—should bring
those additional demand response
resources into the organized wholesale
energy markets. But again, the markets
themselves will determine the
appropriate level of demand response,
and generation, resources needed by the
ISO and RTO to balance energy and
demand based on their relative bids into
the markets.
19. We recognize that the appropriate
level of compensation for demand
response resources participating in
organized wholesale energy markets has
been the subject of debate. In various
proceedings, some parties have
advocated payment of LMP minus
components of the retail rate, on the
theory that such an approach permits all
consumers to react as if they were
paying LMP.44 Some parties have
argued that payment of LMP is
appropriate only during the most
expensive hours,45 on the theory that
43 PJM Interconnection, LLC, 99 FERC ¶ 61,227, at
61,939 (2002) (quoting PJM Interconnection, LLC, 99
FERC ¶ 61,139, at 61,573 (2002)).
44 Professor William W. Hogan has argued, for
instance, that payment of LMP (without an offset for
some portion of the retail rate) over-compensates
individual demand response providers and might
result in more demand response than is efficient.
See Attachment to Answer of Electric Power Supply
Association, Providing Incentives for Efficient
Demand Response, William W. Hogan, October 29,
2009, submitted in Docket No. EL09–68–000.
45 See PJM’s Transmittal Letter at 29 submitted in
Docket No. EL09–68–000.
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demand response will have the greatest
impact during those hours in which the
aggregate supply curve is steep (i.e.,
when supply is less elastic). Given the
current barriers to demand response 46
and the evolving nature of the
technology enabling demand response, a
perfect solution or payment scheme may
not exist. We nonetheless believe that
paying LMP in all hours to the demand
response resources that can participate
in the organized wholesale energy
markets is the correct approach at this
time, because that payment reflects the
marginal effect of each demand
response resource in the hour, just as
the LMP reflects the marginal effect of
generation resources in each hour. LMP
is the marginal value of both demand
response and generation in any hour,
regardless of whether it is morning or
evening, daytime or nighttime, weekday
or weekend.47
20. We, nevertheless, seek comment
on the need to compensate demand
response acting as a resource in
organized wholesale energy markets.
Commenters may address whether
current compensation for demand
response providers acting as a resource
in the organized wholesale energy
markets is adequately procuring
demand response. We further solicit
comment on alternative approaches to
compensating demand response
resources participating in organized
wholesale energy markets, and the merit
of those approaches in comparison to
the one proposed here. In particular, we
ask for comment on whether a reduction
in consumption is comparable to an
srobinson on DSKHWCL6B1PROD with PROPOSALS
46 A
recent Commission Staff report details
several barriers to demand response, including
regulatory barriers, such as lack of a direct
connection between wholesale and retail prices,
lack of dynamic prices, measurement and
verification challenges, lack of real-time
information sharing, and ineffective demand
response program design; technological barriers,
such as lack of advanced metering infrastructure
and the high cost of some enabling technologies;
and other barriers, such as lack of customer
awareness and education. Federal Energy
Regulatory Commission Staff, A National
Assessment of Demand Response Potential (June
2009), found at https://www.ferc.gov/legal/staffrefports/06-09-demand-response.pdf. In compliance
filings submitted by RTOs and ISOs and their
market monitors pursuant to Order No. 719, as well
as in responsive pleadings, parties have mentioned
additional barriers, such as the inability of demand
response resources to set LMP, minimum size
requirements, and others.
47 We note that in PJM, 17 percent of load
reductions by demand response resources for that
year occurred between the non-peak hours of 11
p.m. and 8 a.m. See 2008 State of the Market Report
for PJM, Volume 2, Table 2–93 at 103, found at
https://www.monitoringanalytics.com/reports/PJM_
State_of_the_Market/2008/2008-som-pjmvolume2.pdf.
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increase in electricity production for
purposes of balancing supply and
demand, and whether, therefore,
demand response providers and
generators should receive comparable
compensation. We further seek
comment on whether paying LMP to
demand response resources is
comparable compensation or is more or
less than comparable to compensation
paid to generation in the ISO and RTO
energy markets. We also request
comment on whether payment of LMP
should apply to all hours, and, if not,
the criteria that should be used for
establishing the hours when LMP
should apply. Additionally, we seek
comment on whether requiring payment
of LMP is appropriate across all ISOs
and RTOs, or whether variations among
ISOs and RTOs justify varying levels of
demand response resource
compensation. To that end, we further
seek comment on whether the
Commission should allow regional
variations for an ISO or RTO that does
not seek to compensate demand
response resources participating in the
organized wholesale energy market.
21. Organized wholesale energy
markets are evolving and, as such, the
rules and regulations related to those
markets will continue to evolve. This is
no less so for demand response, as the
markets, and the types of demand
response participating in them, continue
to evolve. Therefore, it may be necessary
in the future for industry and the
Commission to reassess the appropriate
method for compensating demand
response resources in organized
wholesale energy markets.48
Accordingly, we also seek comment on
whether, and under what
circumstances, the Commission should
conduct periodic reviews of demand
response compensation and the criteria
that should be used in making such
assessments.
22. With specific regard to the
proposed regulatory text set forth below,
we seek comments on whether terms
such as ‘‘expected levels,’’ ‘‘price
48 Indeed, the Commission’s proposed action in
this proceeding is evidence of our continuing
assessment of compensation for demand response
resources. In PJM Interconnection, LLC, 121 FERC
¶ 61,315 (2007), the Commission rejected a
complaint that PJM’s existing compensation for
demand response (LMP minus the generation and
transmission components of the retail rate) was
unjust and unreasonable, finding that there was
insufficient evidence at the time to make such a
finding. As we have acquired more experience with
the participation of demand response resources in
the organized wholesale energy markets, we are
concerned that compensation for demand response
in PJM and other RTO and ISO markets may no
longer be just and reasonable.
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15367
signals,’’ and ‘‘market prices’’ are
sufficiently defined.
23. Because we are addressing
generically in this rulemaking
proceeding the same issues raised in the
PJM proceeding in Docket No. EL09–68–
000, that docket is hereby terminated.49
The Commission will take
administrative notice of the record in
the PJM proceeding so that parties in
that proceeding need not refile affidavits
or other evidence introduced there.
III. Information Collection Statement
24. The Office of Management and
Budget (OMB) requires that OMB
approve certain information collection
and data retention requirements
imposed by agency rules.50 Therefore,
the Commission is submitting the
proposed modifications to its
information collections to OMB for
review and approval in accordance with
section 3507(d) of the Paperwork
Reduction Act of 1995.51
25. The Office of Management and
Budget’s (OMB) regulations require
approval of certain information
collection requirements imposed by
agency rules. Upon approval of a
collection(s) of information, OMB will
assign an OMB control number and an
expiration date. Respondents subject to
the filing requirements of a rule will not
be penalized for failing to respond to
these collections of information unless
the collections of information display a
valid OMB control number.
26. The Commission is submitting
these reporting requirements to OMB for
its review and approval under section
3507(d) of the Paperwork Reduction
Act. Comments are solicited on the
Commission’s need for this information,
whether the information will have
practical utility, the accuracy of
provided burden estimates, ways to
enhance the quality, utility, and clarity
of the information to be collected, and
any suggested methods for minimizing
the respondent’s burden, including the
use of automated information
techniques.
Burden Estimate: The Public
Reporting burden for the requirements
contained in the NOPR is as follows:
49 See Michigan Pub. Power Agency v. Midwest
Indep. Transmission Sys. Operator, Inc., 128 FERC
¶ 61,268, at P 29 n.47 (2009) (Commission has
discretion to decide when and where it will resolve
an issue).
50 5 CFR 1320.11(b) (2009).
51 44 U.S.C. 3507(d) (2006).
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Number of
respondents
Number of
responses
Hours per
response
Total
annual hours
FERC–516
Transmission Organizations with Organized Electricity Markets ....................
srobinson on DSKHWCL6B1PROD with PROPOSALS
Data collection
6
1
6
36
Information Collection Costs: The
Commission seeks comments on the
costs to comply with these
requirements. The Commission has
projected the average annualized cost of
all respondents to be the following: 36
hours @ $220 per hour = $7,920 for
respondents. No capital costs are
estimated to be incurred by
respondents.
Title: FERC–516 ‘‘Electric Rate
Schedule Tariff Filings’’.
Action: Proposed Collections.
OMB Control No: 1902–0096.
Respondents: Business or other for
profit, and/or not for profit institutions.
Frequency of Responses: One time to
initially comply with the rule, and then
on occasion as needed to revise or
modify.
27. Necessity of the Information: The
information from FERC–516 enables the
Commission to exercise its statutory
obligation under Sections 205 and 206
of the FPA. FPA section 205 specifies
that all rates and charges, and related
contracts and service conditions for
wholesale sales and transmission of
energy in interstate commerce be filed
with the Commission and must be ‘‘just
and reasonable.’’ In addition, FPA
section 206 requires the Commission
upon complaint or its own motion, to
modify existing rates or services that are
found to unjust, unreasonable, unduly
discriminatory or preferential. The
Commission needs sufficient detail to
make an informed and reasonable
decision concerning the appropriate
level of rates, and the appropriateness of
non-rate terms and conditions, and to
aid customers and other parties who
may wish to challenge the rates, terms,
and conditions proposed by the utility.
28. This proposed rule, if adopted,
would amend the Commission’s
regulations to obligate ISOs and RTOs to
pay the market price for energy to
demand response resources for demand
reductions within each respective ISO
and RTO region. Requiring ISOs and
RTOs to pay the market price for energy
to demand response resources for
demand reductions in response to price
signals will potentially reduce the
market clearing price of electricity. The
Commission has emphasized the
importance of demand response as a
vehicle for improving the
competitiveness of organized wholesale
electricity markets and ensuring
supplies of energy at just, reasonable
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17:29 Mar 26, 2010
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and not unduly discriminatory or
preferential rates.52
29. Internal review: The Commission
has reviewed the requirements
pertaining to organized wholesale
electric markets and determined the
proposed requirements are necessary to
its responsibilities under sections 205
and 206 of the FPA.
30. These requirements conform to
the Commission’s plan for efficient
information collection, communication
and management within the energy
industry. The Commission has assured
itself, by means of internal review, that
there is specific, objective support for
the burden estimates associated with the
information requirements.
31. Interested persons may obtain
information on the reporting
requirements by contacting: Federal
Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426
[Attention: Michael Miller, Office of the
Executive Director, Phone: (202) 502–
8415, fax: (202) 273–0873, e-mail:
michael.miller@ferc.gov]. Comments on
the requirements of the proposed rule
may also be sent to the Office of
Information and Regulatory Affairs,
Office of Management and Budget,
Washington, DC 20503 [Attention: Desk
Officer for the Federal Energy
Regulatory Commission], e-mail:
oira_submission@omb.eop.gov.
IV. Environmental Analysis
32. The Commission is required to
prepare an Environmental Assessment
or an Environmental Impact Statement
for any action that may have a
significant adverse effect on the human
environment.53 The Commission
concludes that neither an
Environmental Assessment nor an
Environmental Impact Statement is
required for this NOPR under section
380.4(a)(15) of the Commission’s
regulations, which provides a
categorical exemption for approval of
actions under sections 205 and 206 of
the FPA relating to the filing of
schedules containing all rates and
charges for the transmission or sale of
electric energy subject to the
Commission’s jurisdiction, plus the
classification, practices, contracts and
52 Order
No. 719 at P 16.
No. 486, Regulations Implementing the
National Environmental Policy Act, 52 FR 47897,
FERC Stats. & Regs. Regulations Preambles 1986–
1990 ¶ 30,783 (1987).
53 Order
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regulations that affect rates, charges,
classifications, and services.54
V. Regulatory Flexibility Act
Certification
33. The Regulatory Flexibility Act of
1980 (RFA) 55 generally requires a
description and analysis of final rules
that will have significant economic
impact on a substantial number of small
entities.56 ISOs and RTOs, not small
entities, are impacted directly by this
rule.
34. California Independent System
Operator Corp. (CAISO) is a non-profit
organization comprised of more than 90
electric transmission-owning companies
and generators operating in its markets
and serving more than 30 million
customers.
35. New York Independent System
Operator, Inc. (NYISO) is a non-profit
organization that oversees wholesale
electricity markets serving 19.2 million
customers. NYISO manages a 10,775mile network of high-voltage lines.
36. PJM Interconnection, LLC (PJM) is
comprised of more than 450 members
including power generators,
transmission owners, electricity
distributors, power marketers, and large
industrial customers, serving 13 States
and the District of Columbia.
37. Southwest Power Pool, Inc. (SPP)
is comprised of 50 members serving 4.5
million customers in eight States and
has 52,301 miles of transmission lines.
38. Midwest Independent
Transmission System Operator, Inc.
(Midwest ISO) is a non-profit
organization with over 131,000
54 18
CFR 380.4(a)(15) (2009).
U.S.C. 601–12 (2000).
56 The RFA definition of ‘‘small entity’’ refers to
the definition provided in the Small Business Act,
which defines a ‘‘small business concern’’ as a
business that is independently owned and operated
and that is not dominant in its field of operation.
See 15 U.S.C. 601(3) (2000) (citing to section 3 of
the Small Business Act, 15 U.S.C. 632 (2000)). The
Small Business Size Standards component of the
North American Industry Classification system
defines a small utility as one that, including its
affiliates, is primarily engaged in the generation,
transmission, or distribution of electric energy for
sale, and whose total electric output for the
preceding fiscal years did not exceed 4 MWh. 13
CFR 121.202 (Sector 22, Utilities, North American
Industry Classification System, NAICS) (2004).
55 5
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megawatts of installed generation.
Midwest ISO has 93,600 miles of
transmission lines and serves 15 States
and one Canadian province.
39. ISO New England, Inc. (ISO–NE)
is a regional transmission organization
serving six States in New England. The
system is comprised of more than 8,000
miles of high-voltage transmission lines
and several hundred generation
facilities, of which more than 350 are
under ISO–NE’s direct control.
40. The Commission believes this rule
will not have a significant economic
impact on a substantial number of small
entities, and therefore no regulatory
flexibility analysis is required.
VI. Comment Procedures
41. The Commission invites interested
persons to submit comments on the
proposed regulatory text that
commenters may wish to discuss.
Comments are due 45 days after
publication in the Federal Register.
Comments must refer to Docket No.
RM10–17–000,57 and must include the
commenter’s name, the organization
they represent, if applicable, and their
address in their comments.
42. The Commission encourages
comments to be filed electronically via
the eFiling link on the Commission’s
Web site at https://www.ferc.gov. The
Commission accepts most standard
word processing formats. Documents
created electronically using word
processing software should be filed in
native applications or print-to-PDF
format and not in a scanned format.
Commenters filing electronically do not
need to make a paper filing.
43. Commenters that are not able to
file comments electronically must send
an original and 14 copies of their
comments to: Federal Energy Regulatory
Commission, Secretary of the
Commission, 888 First Street, NE.,
Washington, DC 20426.
44. All comments will be placed in
the Commission’s public files and may
be viewed, printed, or downloaded
remotely as described in the Document
Availability section below. Commenters
on this proposal are not required to
serve copies of their comments on other
commenters.
srobinson on DSKHWCL6B1PROD with PROPOSALS
VII. Document Availability
45. In addition to publishing the full
text of this document in the Federal
Register, the Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the Internet through
57 Because this NOPR terminates Docket No.
EL09–68–000, comments should not refer to that
proceeding.
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FERC’s Home Page (https://www.ferc.gov)
and in FERC’s Public Reference Room
during normal business hours (8:30 a.m.
to 5 p.m. Eastern time) at 888 First
Street, NE., Room 2A, Washington, DC
20426.
46. From FERC’s Home Page on the
Internet, this information is available on
eLibrary. The full text of this document
is available on eLibrary in PDF and
Microsoft Word format for viewing,
printing, and/or downloading. To access
this document in eLibrary, type the
docket number excluding the last three
digits of this document in the docket
number field.
47. User assistance is available for
eLibrary and the FERC’s Web site during
normal business hours from FERC
Online Support at (202) 502–6652 (toll
free at 1–866–208–3676) or e-mail at
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. E-mail the
Public Reference Room at
public.referenceroom@ferc.gov.
List of Subjects in 18 CFR Part 35
Electric power rates, Electric utilities,
Reporting and recordkeeping
requirements.
By direction of the Commission.
Commissioner Moeller is concurring in part
and dissenting in part with separate
statement attached.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
In consideration of the foregoing, the
Commission proposes to amend Chapter
I, Title 18 of the Code of Federal
Regulations as follows:
PART 35—FILING OF RATE
SCHEDULES AND TARIFFS
1. The authority citation for part 35
continues to read as follows:
Authority: 16 U.S.C. 791a–825r, 2601–
2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352.
2. Amend § 35.28 by adding
paragraph (g)(1)(v) to read as follows:
§ 35.28 Non-discriminatory open access
transmission tariff.
*
*
*
*
*
(g) * * *
(1) * * *
(v) Demand response compensation in
energy markets. Each Commissionapproved independent system operator
or regional transmission organization
that has a tariff provision permitting
demand response resources to
participate as a resource in the energy
market by reducing consumption of
electric energy from their expected
levels in response to price signals must
pay to those demand response
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15369
providers, in all hours, the market price
for energy for these reductions.
*
*
*
*
*
Note: The following material will not
appear in the Code of Federal Regulations.
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY
COMMISSION
Demand Response Compensation in
Organized Wholesale Energy Markets,
Docket No. RM10–17–000
PJM Interconnection, L.L.C., Docket No.
EL09–68–000
Issued March 18, 2010.
MOELLER, Commissioner,
concurring, in part and dissenting, in
part:
As our country’s demand for energy
increases, the reduction of energy usage
through demand response programs will
play a critical role in meeting our needs
and it is my hope that this nascent
industry will thrive and succeed. In the
Energy Policy Act of 2005, Congress
established a policy to encourage the
use of demand response by: (1)
facilitating the deployment of
technology to enable customers to
participate in demand response
programs; and (2) eliminating
unnecessary barriers to demand
response participation.1
Even before this law was passed, this
Commission supported similar policies
in the organized electric markets by
encouraging the use of price responsive
demand during high priced energy
periods.2
Demand response is playing an
increasingly critical role in our nation’s
energy supply mix. Additional demand
response has the potential to produce
more efficient market outcomes,
contribute to a cleaner environment,3
result in lower costs to customers, and
help to check market power since it
provides a countervailing willingness to
reduce demand in the face of high
prices.4 With respect to prices, studies
have shown that sometimes a small
decrease in demand from demand
response resources during peak periods
can significantly reduce market prices.
In sum, the benefits that demand
1 Energy Policy Act of 2005, Pub. L. No. 109–58
§ 1252(f), 119 Stat. 594 (2005).
2 PJM Interconnection, L.L.C., 99 FERC ¶ 61,227,
at 61,943 (2002) see also Order No. 719 at P 16
(‘‘Thus, enabling demand-side resources * * *
improves the economic operation of electric power
markets by aligning prices more closely with he
value customers place on electric power.’’)
3 A recent report by the National Research
Council, Hidden Costs of Energy: Unpriced
Consequences of Energy Production and Use,
provides estimates of the cost associated with air
pollution as the result of energy production.
4 California Indep. Sys. Operator Corp., 116 FERC
¶ 61,274, at P 689.
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response resources can bring to the
energy markets are proven and
significant.
The initial success of demand
response has resulted in a steady
maturation of the demand response
industry. However, as the industry
continues to mature, we must ensure
that our policies are properly tailored to
guide the development of demand
response in a manner that will result in
economically-efficient outcomes.
Moving too quickly to reach a desired
result can result in unintended
consequences—and I believe that
today’s decision to propose a standard
payment could have unintentional
effects on both demand response
participation and the efficient operation
of the organized markets over the longer
term.
In today’s notice of proposed
rulemaking (NOPR), the majority
concludes that the Commission should
require a standard payment to
compensate demand response resources.
Specifically, the majority’s proposed
outcome would be that these resources
are paid the market price (i.e., the
locational marginal price or ‘‘LMP’’) for
energy reductions in all 8,760 hours of
the year. This determination is followed
by questions such as whether other
compensation designs could also work;
questions that I believe would have
been more appropriately asked prior to
establishing this NOPR.5 For that
reason, I believe that a preliminary
issuance (such as a Notice of Inquiry)
should have been established to collect
and analyze the evidence in advance of
initiating a formal rulemaking
proceeding.
While the majority claims that it is
‘‘concerned that compensation for
demand response in PJM and other RTO
and ISO markets may no longer be just
and reasonable’’, the NOPR lacks a
thorough discussion of the evidence that
they relied upon to substantiate their
concerns.6 The NOPR also lacks a
5 To the extent that this NOPR asks questions to
determine whether the proposed rule is just and
reasonable, I concur.
6 NOPR at n. 57. In support of the conclusion that
compensation may no longer be just and reasonable,
the preamble provides an example involving PJM’s
Economic Load Response Program and the drop of
settled demand reductions experienced after the
subsidy payments expired per the terms of PJM’s
tariff. NOPR at P 10. While the cited level of
reduction is a fact, the PJM market monitor stated
that ‘‘[w]hile the removal of the incentive program,
effective November 2007, may have reduced
participation, the exact role of the elimination of
the incentive program is not known because there
were changes to other key factors which directly
impact participation.’’ Citing Monitoring Analytics,
Barriers to Demand Side Response in PJM, at 22
(July 1, 2009). More recently, the PJM market
monitor recognized that between 2008 and 2009,
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sufficient explanation of the
‘‘experience’’ that FERC has recently
gained that would otherwise support the
conclusion that the organized electric
markets ‘‘fail to compensate demand
response at levels that reflect the
marginal value of the resource being
used by the RTO or ISO to balance
supply and demand.’’ 7
To the contrary, the record in Docket
No. EL09–68–000 shows wide
disagreement in the industry regarding
the issue of demand response
compensation. In that proceeding, State
utility commissions,8 the grid operator,
industry economists, and the market
participants all reached various
conclusions regarding the question of
how to compensate demand response
resources in PJM.9 In light of such
rigorous debate, I am not sure if the
Commission has a sustainable rationale
to support a finding that the proposed
rule is just and reasonable and that the
existing compensation methods (that
have been approved by this
Commission) are no longer just and
reasonable.
In fact, only recently did the
Commission issue an order that not only
sustained the manner by which PJM
compensates demand response
resources but also encouraged PJM and
its stakeholders to identify and analyze
issues to improve their demand
response program.10 Subsequently, PJM
filed a detailed report explaining that
while the stakeholder process did not
‘‘[t]here were many factors contributing to the lower
levels of participation and lower revenues in the
Economic Program, including lower price levels in
2009, lower load levels, and improved
measurement and verification.’’ Notably, while
payments from the Economic Program have fallen
substantially since 2007, capacity revenue for
demand response has increased significantly (rising
114% to $303 million from 2008 to 2009). Citing
Monitoring Analytics, State of the Market Report for
PJM, at 111 (March 11, 2010).
7 NOPR at P 13.
8 Compare the position of the Indiana Utility
Regulatory Commission (i.e., LMP less the
generation portion of retail rates (LMP–G) is an
accepted indication of cost-effectiveness) with the
position taken by the New Jersey Board of Public
Utilities and the District of Columbia Public Service
Commission (i.e., compensation for demand
response should be based solely on LMP).
Comments filed in Docket No. EL09–68–000.
9 While there appears to be no disagreement that
the correct price signal for all customers is the LMP,
the debate centers on whether demand response
resources should be paid the LMP or should realize
the value of LMP if they choose to reduce demand.
Additionally, at certain times, the LMP can become
negative, meaning that generators must pay into the
market to the extent they generate power. Should
demand response resources likewise be required to
pay into the market during negative LMP events, or
should they be exempt?
10 PJM Industrial Customer Coalition v. PJM
Interconnection, L.L.C., 121 FERC ¶ 61,315, at P 29
(2007) (Wellinghoff and Kelly, Comm’rs,
dissenting).
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yield a consensus position, the PJM
Board moved forward and developed a
compromise solution that was designed
to strengthen its demand response
markets.11 In lieu of evaluating the
merits of the proposal approved by
PJM’s Board, the NOPR terminates the
PJM docket and directs PJM and its
stakeholders to focus on whether
demand response resources should be
paid the market price—a question that
has undoubtedly been analyzed,
addressed and debated at numerous
stakeholder meetings.
Since today’s NOPR does not
sufficiently explain the need for a
uniform compensation approach, I am
troubled by the decision to terminate
PJM’s individual proceeding. If
approved, PJM’s efforts toward
developing a compromise solution for
its market would have likely resulted in
additional demand response
participation and its associated benefits.
However, with this NOPR’s issuance,
PJM and the other RTOs must now
refrain from making changes to its
demand response compensation rules
pending the outcome of the rulemaking
proceeding. The NOPR may also
discourage some emerging organized
markets from continuing to evolve
toward the LMP model, as well as
discourage some non-organized regions
from seriously considering moving
toward a market structure.
Ultimately, I want demand response
to thrive and succeed in all the energy
markets.12 However, there are only so
many policy decisions and rulemakings
that this Commission can make to
encourage its development. As
mentioned in the preamble, the primary
barrier to increased demand response is
the disconnect between retail and
wholesale prices and the remedy resides
at the retail level where there is a lack
of dynamic pricing. The approach
embraced in the NOPR may also lead to
a situation where residential ratepayers
could be subsidizing other classes of
service while unable to participate
themselves in demand response
11 PJM did note that the concept of paying LMP–
G received considerable support and
‘‘conservatively could be said to have garnered at
least a three-quarters majority approval.’’ See PJM
Supplemental Report in Docket No. EL09–68–000 at
24–25.
12 My concern here goes to highlight the
differences between regions with competitive
wholesale markets and those that consist of largely
bilateral market structures. By imposing a uniform
compensation requirement, this proposed
rulemaking could further exacerbate bifurcated
approach toward national policy: entities in a
competitive wholesale market must comply with
increasingly burdensome requirements while
entities operating in bilateral markets are often free
from requirements that otherwise advance national
policy goals.
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Federal Register / Vol. 75, No. 59 / Monday, March 29, 2010 / Proposed Rules
programs. Absent attention to these
issues, it will be difficult for any
proposal to place generation and
demand response on a precisely level
playing field.
Until then, this Commission must
review what options it has available
without resorting to policies that would
adversely enable the short-term
development of demand response at the
expense of its longer-term success. In
closing, I believe that demand response
programs have great potential to
enhance the organized energy markets
and I look forward to their continued
development. I am concerned, however,
that a one-size-fits-all approach could
result in uneconomic outcomes that
ultimately set back the future
development of demand response.
Philip D. Moeller,
Commissioner.
[FR Doc. 2010–6478 Filed 3–26–10; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 40
[Docket No. RM09–13–000]
Notice of Proposed Rulemaking
Time Error Correction Reliability
Standard
March 18, 2010.
AGENCY: Federal Energy Regulatory
Commission.
ACTION: Notice of Proposed Rulemaking.
SUMMARY: Pursuant to section 215 of the
Federal Power Act, the Commission
proposes to remand the proposed
revised Time Error Correction
Reliability Standard developed by the
North American Electric Reliability
Corporation (NERC) in order for NERC
to develop several modifications to the
proposed Reliability Standard. The
proposed action ensures that any
modifications to Reliability Standards
will be just, reasonable, not unduly
discriminatory or preferential, and in
the public interest.
DATES: Comments are due April 28,
2010.
Interested persons may
submit comments, identified by Docket
No. RM09–13–000, by any of the
following methods:
• eFiling: Comments may be filed
electronically via the eFiling link on the
Commission’s Web site at https://
www.ferc.gov. Documents created
electronically using word processing
software should be filed in the native
srobinson on DSKHWCL6B1PROD with PROPOSALS
ADDRESSES:
VerDate Nov<24>2008
18:16 Mar 26, 2010
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application or print-to-PDF format and
not in a scanned format. The
Commission accepts most standard
word processing formats and
commenters may attach additional files
with supporting information in certain
other file formats. Attachments that
exist only in paper form may be
scanned. Commenters filing
electronically should not make a paper
filing. Service of rulemaking comments
is not required.
• Mail/Hand Delivery: Commenters
that are not able to file comments
electronically must mail or hand deliver
an original and 14 copies of their
comments to: Federal Energy Regulatory
Commission, Secretary of the
Commission, 888 First Street, NE.,
Washington, DC 20426.
FOR FURTHER INFORMATION CONTACT:
Mindi Sauter (Legal Information), Office
of the General Counsel, Federal Energy
Regulatory Commission, 888 First
Street, NE., Washington, DC 20426,
(202) 502–6830.
Scott Sells (Technical Information),
Office of Electric Reliability, Division of
Reliability Standards, Federal Energy
Regulatory Commission, 888 First
Street, NE., Washington, DC 20426,
(202) 502–6664.
SUPPLEMENTARY INFORMATION:
March 18, 2010
1. Pursuant to section 215 of the
Federal Power Act (FPA),1 the
Commission proposes to remand the
Time Error Correction Reliability
Standard (BAL–004–1) developed by the
North American Electric Reliability
Corporation (NERC) in order for NERC
to develop several modifications to the
proposed Reliability Standard, as
discussed below.2
I. Background
A. EPAct 2005 and Mandatory
Reliability Standards
2. Section 215 of the FPA requires a
Commission-certified Electric
Reliability Organization (ERO) to
develop mandatory and enforceable
Reliability Standards, which are subject
to Commission review and approval.
Specifically, the Commission may
approve, by rule or order, a proposed
Reliability Standard or modification to a
Reliability Standard if it determines that
1 16
U.S.C. 824o.
Commission is not proposing any new or
modified text to its regulations. Rather, as provided
in 18 CFR part 40, a proposed Reliability Standard
will not become effective until approved by the
Commission, and the Electric Reliability
Organization must post on its website each effective
Reliability Standard.
2 The
PO 00000
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15371
the Standard is just, reasonable, not
unduly discriminatory or preferential,
and in the public interest.3 Once
approved, the Reliability Standards may
be enforced by the ERO, subject to
Commission oversight, or by the
Commission independently.4
3. Pursuant to section 215 of the FPA,
the Commission established a process to
select and certify an ERO 5 and,
subsequently, certified NERC as the
ERO.6 On April 4, 2006, NERC
submitted a petition seeking approval of
107 proposed Reliability Standards,
including BAL–004–0.7 On March 16,
2007, the Commission issued Order No.
693 approving 83 of these 107
Reliability Standards, including BAL–
004–0, and directing other actions
related to 56 of the approved Reliability
Standards.
1. Time Error Correction Generally
4. Time Error occurs when a
synchronous Interconnection operates at
a frequency (number of cycles per
second) that is different from the
Interconnection’s Scheduled Frequency.
Interconnections control to 60 Hz (60
cycles per second), however, the control
is imperfect and over time will result in
the average frequency being either above
60 Hz or below 60 Hz. This discrepancy
between actual frequency and
Scheduled Frequency results from an
imbalance between generation and
interchange and load and losses, which
also results in Inadvertent Interchange.8
Time Error Correction is the procedure
Reliability Coordinators and Balancing
Authorities follow to reduce Time Error
and regulate the average frequency
closer to 60 Hz. The Time Error
Correction Reliability Standard sets
forth the process that Reliability
Coordinators and Balancing Authorities
follow to offset their Scheduled
3 18
U.S.C. 824o(d)(2).
824o(e)(3).
5 Rules Concerning Certification of the Electric
Reliability Organization; and Procedures for the
Establishment, Approval, and Enforcement of
Electric Reliability Standards, Order No. 672, FERC
Stats. & Regs. ¶ 31,204, order on reh’g, Order No.
672–A, FERC Stats. & Regs. ¶ 31,212 (2006).
6 North American Electric Reliability Corp., 116
FERC ¶ 61,062 (ERO Certification Order), order on
reh’g & compliance, 117 FERC ¶ 61,126 (2006), aff’d
sub nom. Alcoa, Inc. v. FERC, 564 F.3d 1342 (D.C.
Cir. 2009).
7 See Petition of the North American Electric
Reliability Council and North American Electric
Reliability Corporation for Approval of Reliability
Standards, April 4, 2006 at 28–29, Docket No.
RM06–16–000.
8 Inadvertent Interchange occurs when unplanned
energy transfers cross Balancing Authority
boundaries, typically where a Balancing Authority
experiences an operational problem that prevents
its net actual interchange of energy from matching
its net scheduled interchange with other Balancing
Authorities within the Interconnection.
4 Id.
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]]>Agencies
[Federal Register Volume 75, Number 59 (Monday, March 29, 2010)]
[Proposed Rules]
[Pages 15362-15371]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-6478]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 35
[Docket No. RM10-17-000]
Demand Response Compensation in Organized Wholesale Energy
Markets
March 18, 2010.
AGENCY: Federal Energy Regulatory Commission, Energy.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Energy Regulatory Commission is issuing a Notice
of Proposed Rulemaking (NOPR) proposing an approach for compensating
demand response resources in order to improve the competitiveness of
organized wholesale energy markets and thus ensure just and reasonable
wholesale rates. The Commission invites all interested persons to
submit comments in response to the regulatory text proposed herein.
DATES: Comments are due May 13, 2010.
ADDRESSES: You may submit comments, identified by docket number by any
of the following methods:
[[Page 15363]]
Agency Web Site: https://ferc.gov. Documents created
electronically using word processing software should be filed in native
applications or print-to-PDF format and not in a scanned format.
Mail/Hand Delivery: Commenters unable to file comments
electronically must mail or hand deliver an original and 14 copies of
their comments to: Federal Energy Regulatory Commission, Secretary of
the Commission, 888 First Street, NE., Washington, DC 20426.
Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Comment
Procedures Section of this document.
FOR FURTHER INFORMATION CONTACT:
Arnie Quinn, Federal Energy Regulatory Commission, Office of Energy
Policy & Innovation, 888 First Street, NE., Washington, DC 20426. (202)
502-8693. arnie.quinn@ferc.gov.
Helen Dyson, Federal Energy Regulatory Commission, Office of the
General Counsel, 888 First Street, NE., Washington, DC 20426. (202)
502-8856. helen.dyson@ferc.gov.
SUPPLEMENTARY INFORMATION:
130 FERC ] 61,213, PJM Interconnection, LLC, Docket No. EL09-68-000
Notice of Proposed Rulemaking
Table of Contents
Paragraph
Numbers
I. Background............................................... 2
A. Role of Demand Response in Organized Wholesale Energy 2
Markets................................................
B. Current ISO and RTO Demand Response Programs......... 7
C. The Need for Reform.................................. 9
II. Discussion.............................................. 11
III. Information Collection Statement....................... 24
IV. Environmental Analysis.................................. 32
V. Regulatory Flexibility Act Certification................. 33
VI. Comment Procedures...................................... 41
VII. Document Availability.................................. 45
1. The Federal Energy Regulatory Commission (Commission) is
proposing to revise its regulations to establish the approach described
below as compensation for demand response \1\ resources \2\
participating in organized energy markets. We propose that Independent
System Operators (ISOs) and Regional Transmission Organizations (RTOs)
\3\ with tariff provisions permitting demand response providers to
participate as resources in energy markets by reducing consumption of
electricity from their expected levels in response to price signals be
required to pay to demand response providers, in all hours, the market
price for energy for such reductions.\4\
---------------------------------------------------------------------------
\1\ Demand response means a reduction in the consumption of
electric energy by customers from their expected consumption in
response to an increase in the price of electric energy or to
incentive payments designed to induce lower consumption of electric
energy. 18 CFR 35.28(b)(4).
\2\ Demand response resource means a resource capable of
providing demand response. 18 CFR 35.28(b)(5).
\3\ The following RTOs and ISOs have organized wholesale
electricity markets: PJM Interconnection, LLC (PJM); New York
Independent System Operator, Inc. (NYISO); Midwest Independent
Transmission System Operator, Inc. (Midwest ISO); ISO New England,
Inc. (ISO-NE); California Independent System Operator Corp. (CAISO);
and Southwest Power Pool, Inc. (SPP).
\4\ This provision applies only to demand response acting as a
resource in organized wholesale energy markets. The provision will
not apply to demand response under programs that ISOs and RTOs
administer for reliability or emergency conditions, such as, for
instance, Midwest ISO's Emergency Demand Response; NYISO's Emergency
Demand Response Program; PJM's Emergency Load Response; and ISO-NE's
Real-Time 30-Minute Demand Response Program, Real-Time and 2-Hour
Demand Response Program, and Real-Time Profiled Response Program.
This provision also will not apply to compensation in ancillary
services markets, which the Commission has addressed elsewhere. See
e.g., Wholesale Competition in Regions with Organized Electric
Markets, Order No. 719, 73 FR 64,100 (Oct. 28, 2008), FERC Stats. &
Regs. P 31,281 (2008) (Order No. 719 or Final Rule).
---------------------------------------------------------------------------
I. Background
A. Role of Demand Response in Organized Wholesale Energy Markets
2. The Commission has acted over the last several decades to
implement Congressional policy to expand the wholesale energy markets
to facilitate entry of new resources and support competitive markets.
Most recently, the Commission in Order No. 719 implemented a series of
reforms aimed at improving the competitiveness of the organized energy
markets, finding that effective wholesale competition protects
consumers by, among other things, providing more supply options,
encouraging new entry and innovation, and spurring deployment of new
technologies.\5\ Improving the competitiveness of organized wholesale
markets, the Commission concluded, is therefore ``integral to the
Commission fulfilling its statutory mandate to ensure supplies of
electric energy at just, reasonable, and not unduly discriminatory or
preferential rates.'' \6\
---------------------------------------------------------------------------
\5\ See Order No. 719 at P 1; see also Regional Transmission
Organizations, Order No. 2000, FERC Stats. & Regs. ] 31,089, at P 1
(1999), order on reh'g, Order No. 2000-A, FERC Stats. & Regs. ]
31,092 (2000), aff'd sub nom. Pub. Util. Dist. No. 1 of Snohomish
County, Washington v. FERC, 272 F.3d 607, 348 U.S. App. D.C. 205 (DC
Cir. 2001).
\6\ Order No. 719 at P 1.
---------------------------------------------------------------------------
3. As the Commission recognized in Order No. 719, active
participation by customers in organized wholesale energy markets
through demand reductions helps to increase competition in those
markets.\7\ Demand reductions whereby customers reduce electricity
consumption from normal usage levels in response to price signals can
generally occur in two ways: (1) Customers reduce demand by responding
to dynamic rates that are based on wholesale prices (sometimes called
``price-responsive demand''); and (2) customers can provide demand
response that acts as a resource in wholesale markets to balance supply
and demand. While a number of States and utilities are pursuing retail-
level price-responsive demand initiatives based on dynamic and time-
differentiated retail prices and utility investments, these are State
initiatives, and, thus, are not the subject of this proceeding.\8\ Our
focus here is on customers providing--through bids--demand response
that acts as a resource in organized wholesale energy markets.
---------------------------------------------------------------------------
\7\ See Order No. 719 at P 48.
\8\ Some ISOs and RTOs are engaged in stakeholder discussions
concerning the coordination necessary between wholesale markets and
retail rate design, and we expect to address any filings emerging
from those discussions in future proceedings.
---------------------------------------------------------------------------
4. Demand response acting as a resource in organized wholesale
energy markets helps to improve the functioning and competitiveness of
such markets in several ways. First, demand response can lower prices.
When bid directly into the wholesale market, demand response--which
results in
[[Page 15364]]
lower demand--can result in lower clearing prices.\9\ For example, a
study conducted by PJM, which simulated the effect of demand response
on prices, demonstrated that a modest three percent load reduction in
the 100 highest peak hours corresponds to a price decline of six to 12
percent.\10\ Demand response can also lower prices in the organized
wholesale energy markets by reducing the need to dispatch higher-priced
generation, or construct new generation, in an effort to satisfy
load.\11\ Second, demand response can mitigate generator market
power.\12\ This is because the more demand response is able to reduce
demand, the more downward pressure it places on generator bidding
strategies by increasing the risk to a supplier that it will not be
dispatched if it bids a price that is too high.\13\ Third, demand
response has the potential to support system reliability and address
resource adequacy \14\ and resource management challenges surrounding
the unexpected loss of generation.\15\
---------------------------------------------------------------------------
\9\ Wholesale Competition in Regions with Organized Electric
Markets, Order No. 719-A, FERC Stats. & Regs. ] 31,292 (2009).
\10\ ISO-RTO Council Report, Harnessing the Power of Demand: How
ISOs and RTOs Are Integrating Demand Response into Wholesale
Electricity Markets, found at https://www.isorto.org/atf/cf/%7B5B4E85C6-7EAC-40A0-8DC3-003829518EBD%7D/IRC_DR_Report_101607.pdf.
\11\ Id. (``Demand response tends to flatten an area's load
profile, which in turn may reduce the need to construct and use more
costly resources during periods of high demand; the overall effect
is to lower the average cost of producing energy.''). Similarly,
NYISO ``has experienced a significant increase in the registration
of the [demand response] programs that have effectively reduced the
need for additional [generation] capacity resources to the system
based on customer pledges to cut energy usage on demand.'' See
NYISO's 2009 Comprehensive Reliability Plan at 3, found at https://www.nyiso.com/public/webdocs/newsroom/planning_reports/CRP__FINAL_5-19-09.pdf.
\12\ See Comments of NYISO's Market Monitor filed in Docket No.
ER09-1142-000, May 15, 2009 (Demand response ``contributes to
reliability in the short-term, resource adequacy in the long-term,
reduces price volatility and other market costs, and mitigates
supplier market power.'').
\13\ Id.
\14\ See ISO-RTO Council Report, Harnessing the Power of Demand:
How ISOs and RTOs Are Integrating Demand Response into Wholesale
Electricity Markets at 4, found at https://www.isorto.org/atf/cf/%7B5B4E85C6-7EAC-40A0-8DC3-003829518EBD%7D/IRC_DR_Report_101607.pdf (``Demand response contributes to maintaining system
reliability. Lower electric load when supply is especially tight
reduces the likelihood of load shedding. Improvements in reliability
mean that many circumstances that otherwise result in forced outages
and rolling blackouts are averted, resulting in substantial
financial savings. * * *''); Smart Grid Policy, 126 FERC ] 61,253,
at P 19 and n.23 (2009) (``The Smart Grid concept envisions a power
system architecture that permits two-way communication between the
grid and essentially all devices that connect to it, ultimately all
the way down to large consumer appliances. * * * Once that is
achieved, a significant proportion of electric load could become an
important resource to the electric system, able to respond
automatically to customer-selected price or dispatch signals
delivered over the Smart Grid infrastructure without significant
degradation of service quality.'').
\15\ For instance, in ERCOT, on February 26, 2008, through a
combination of a sudden drop in power supplied by wind generators, a
quicker-than-expected ramping up of demand, and the loss of thermal
generation, ERCOT found itself short of reserves. The system
operator called on all demand response resources, and 1200 MW of
Load acting as Resource (LaaRs) responded within ten minutes,
bringing ERCOT back into balance, from 59.85 Hz back to 60 Hz.
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5. Given its ability to lower electricity prices and ensure
reliability, demand response can play a critical role in helping the
Commission fulfill its mandate under the Federal Power Act (FPA) to
ensure that rates charged for energy are just and reasonable.\16\
Accordingly, and consistent with national policy requiring facilitation
of demand response,\17\ the Commission has acted to remove barriers to
participation of demand response resources in organized wholesale
electricity markets. For example, in Order No. 890, the Commission
modified the pro forma Open Access Transmission Tariff to allow non-
generation resources, including demand response resources, to be used
in the provision of certain ancillary services where appropriate on a
comparable basis to service provided by generation resources.\18\ Order
No. 890-A further requires transmission providers to develop
transmission planning processes that treat all resources, including
demand response, on a comparable basis.\19\
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\16\ 16 U.S.C. 824d (2006).
\17\ See EPAct 2005, Public Law 109-58, Sec. 1252(f), 119 Stat.
594, 965 (2005) (``It is the policy of the United States that * * *
unnecessary barriers to demand response participation in energy,
capacity, and ancillary service markets shall be eliminated.'').
\18\ Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241 at
P 887-88 (2007), order on reh'g, Order No. 890-A, FERC Stats. &
Regs. ] 31,261 (2007), order on reh'g and clarification, Order No.
890-B, 73 FR 39092 (Jul. 8, 2008), 123 FERC ] 61,299 (2008), order
on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009), order on
clarification, Order No. 890-D, 129 FERC ] 61,126 (2009).
\19\ Order No. 890-A at P 216.
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6. The Commission built on these reforms in Order No. 719,
requiring ISOs and RTOs to, among other things, accept bids from demand
response resources in their markets for certain ancillary services on a
basis comparable to other resources.\20\ The Commission also required
each ISO and RTO ``to reform or demonstrate the adequacy of its
existing market rules to ensure that the market price for energy
reflects the value of energy during an operating reserve shortage,''
\21\ for purposes of encouraging existing generation and demand
resources to continue to be relied upon during an operating reserve
shortage, and encouraging entry of new generation and demand
resources.\22\
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\20\ Order No. 719 at P 47-49.
\21\ Id. P 194.
\22\ Id. P 247.
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B. Current ISO and RTO Demand Response Programs
7. In addition to the foregoing efforts, the Commission has issued
orders in recent years approving various types of ISO and RTO demand
response programs. As noted above, some of these programs are
administered for reliability and emergency conditions. Apart from these
programs, wholesale customers and qualifying large retail customers may
bid demand response directly into the day-ahead and real-time energy
markets, certain ancillary service markets and capacity markets.\23\
Demand response providers participating as resources in the day-ahead
and real-time energy markets are the subject of this proceeding.
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\23\ Other demand response programs allow demand response to be
used as a capacity resource and as a resource during system
emergencies or permit the use of demand response for synchronized
reserves and regulation service. See, e.g., PJM Interconnection,
LLC, 117 FERC ] 61,331 (2006); Devon Power LLC, 115 FERC ] 61,340,
order on reh'g, 117 FERC ] 61,133 (2006), appeal pending sub nom.,
Maine Pub. Utils. Comm'n v. FERC, No. 06-1403 (DC Cir. 2007); New
York Indep. Sys. Operator., Inc., 95 FERC ] 61,136 (2001); NSTAR
Services Co. v. New England Power Pool, 95 FERC ] 61,250 (2001); New
England Power Pool and ISO New England, Inc., 100 FERC ] 61,287,
order on reh'g, 101 FERC ] 61,344 (2002), order on reh'g, 103 FERC ]
61,304, order on reh'g, 105 FERC ] 61,211 (2003); PJM
Interconnection, LLC, 99 FERC ] 61,227 (2002).
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8. With particular regard to demand response compensation for this
latter category of resources, the Commission previously has allowed a
system-by-system approach, whereby each RTO and ISO has developed its
own compensation methodologies for demand response resources in its
energy market. As a result, the levels of compensation for demand
response vary significantly among RTOs and ISOs. PJM pays the
Locational Marginal Price (LMP) \24\ minus the generation and
transmission portions of the retail rate.\25\ ISO-NE and NYISO
currently pay LMP
[[Page 15365]]
when prices are above a threshold level, with the levels differing
between the RTOs.\26\ The Midwest ISO currently has a program that pays
LMP for demand response in the real-time energy market when the demand
response provider has purchased the amount reduced in the day-ahead
market for energy and ancillary services.\27\ CAISO pays LMP in its
participating load program that allows qualifying resources to provide
day-ahead and real-time energy and non-spinning reserves.\28\ SPP
currently has no demand response program at all.\29\ ISOs and RTOs have
continued to examine the effectiveness of demand response compensation
in their respective regions, and, as a result, the issue of proper
compensation continues to be the subject of several proceedings.\30\
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\24\ LMP refers to the price calculated by the ISO or RTO at
particular locations or electrical nodes within the ISO or RTO
footprint and is used as the market price to compensate generators.
There are variations in the way ISOs and RTOs calculate LMP;
however, each method establishes the marginal value of resources in
that market. Nothing in this NOPR is intended to change ISO and RTO
methods for calculating LMP.
\25\ PJM FERC Electric Tariff, Sixth Revised Sheet No. 388D.01.
\26\ For example, under ISO-NE's Real Time Price Response
Program, the minimum bid is $100/MWh and a demand response resource
is paid the higher of LMP or $100/MWh. See Section III.1.3 of the
ISO New England Transmission, Markets and Services Tariff, Section 1
of the Second Restated New England Power Pool Agreement. NYISO
implements a day-ahead demand response program by which resources
bid into the market at a minimum of $75/MWh and can get paid the
LMP. See NYISO Incentivized Day-Ahead Economic Load Curtailment
Program, Fifth Revised Tariff Sheet No. 34-34A, 89.
\27\ See Charges and Credits for Real-Time Energy and Operating
Reserve Market Energy Purchases and Sales Associated with Demand
Response Resources. Midwest ISO FERC Electric Tariff, Fourth Revised
Volume No. 1, Second Revised Sheet No. 1114.
\28\ See section 11.2.1.1 IFM Payments for Supply of Energy,
CAISO FERC Electric Tariff.
\29\ However, the Commission has directed SPP to report on ways
it can incorporate demand response into its imbalance market.
Southwest Power Pool, Inc., 114 FERC ] 61,289, at P 229 (2006). In
its orders addressing SPP's compliance with Order No. 719, the
Commission also directed SPP to make a subsequent compliance filing
addressing demand response participation in its organized markets.
Southwest Power Pool, Inc., 129 FERC ] 61,163, at P 51 (2009).
\30\ See PJM Interconnection, LLC, Docket No. EL09-68-000; ISO
New England, Inc., Docket No. ER09-1051-000; ISO New England, Inc.,
Docket No. ER08-830-000; Midwest Indep. Transmission Sys. Operator,
Inc., Docket No. ER09-1049-000.
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C. The Need for Reform
9. Despite the benefits of demand response and various efforts by
the Commission, ISOs and RTOs to address barriers to and compensation
for demand response participation, demand response providers
collectively play a small role in wholesale markets. After several
years of observing demand response participation in ISO and RTO markets
with different, and often evolving, demand response compensation
structures, the Commission is concerned that some existing, inadequate
compensation structures have hindered the development and use of demand
response. The impediment has been addressed at Commission-sponsored
technical conferences concerning demand response, where participants
have confirmed that customers ``must have confidence that appropriate
price signals will be sustained by stable competitive pricing
structures, before they will make an investment in demand response.''
\31\ Some participants have advised that demand response quite simply
will not occur without adequate compensation.\32\
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\31\ Transcript of Order No. 719 technical conference at 24,
statement by James Eber, Director of Demand Response at Commonwealth
Edison, found at https://www.ferc.gov/EventCalendar/EventDetails.aspx?ID=3994&CalType=%20&CalendarID=116&Date=05/21/2008&View=Listview.
\32\ See Statements of Larry Stalica, Vice President, Linde
Energy Services, Inc. FERC Technical Conference--Demand Response in
Organized Electric Markets, May 21, 2008, found at https://www.ferc.gov/EventCalendar/Files/20080521081612-Stalica,%20Linde%20Energy%20Services.pdf. (``The mere avoidance of
electricity prices often provides insufficient value to offset these
real costs. Demand response will not occur if customers do not have
an economic incentive to reduce consumption.'').
---------------------------------------------------------------------------
10. Indeed, there are indications that demand response resources
react correspondingly to increases or decreases in payment. PJM
provides a case study on this point. It first implemented its Economic
Load Response Program (Economic Program) providing for demand response
compensation in June 2002.\33\ Several years later, starting in January
2008, when PJM reduced its compensation for demand response, settled
demand reductions began decreasing from previous years.\34\
Specifically, PJM's Market Monitor noted that, from 2007 to 2008,
following the decrease in compensation, settled demand reductions
decreased by 36.8 percent, from 714,200 MWh to 458,300 MWh, and the
decline has continued at least through March 2009.\35\ Although the
Commission had rejected a request to prevent the compensation decrease
from occurring as per the terms of PJM's then-existing tariff, the
Commission encouraged PJM and its stakeholders to continue analyzing
the effectiveness of PJM's demand response program with the decreased
payments for demand response.\36\ Based upon our own review, the
Commission is now concerned that evidence of demand reductions in PJM,
and inadequate demand response participation, now and in the future,
may be the result of compensation that is no longer just and
reasonable, because, as detailed below, the existing and varying levels
of compensation generally fail to reflect the marginal value of demand
response resources to ISO and RTO energy markets.
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\33\ See PJM Interconnection, LLC, 99 FERC ] 61,227 (2002).
PJM's Economic Program provided for payment of LMP for all demand
response reductions when LMP equaled or exceeded $75/MWh and paid
LMP minus the generation and transmission components of the retail
rate when LMP was less than $75/MWh.
\34\ The tariff provision providing for payment of LMP when LMP
equaled or exceeded $75/MWh terminated by its terms on December 31,
2007, and, since then, PJM has paid only LMP minus the generation
and transmission components of the retail rate.
\35\ Monitoring Analytics, Barriers to Demand Side Response in
PJM at 22 (July 1, 2009).
\36\ PJM Interconnection, LLC, 121 FERC ] 61,315, at P 29
(2007).
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II. Discussion
11. Given the importance of demand response resources to the
competitiveness of organized wholesale electricity markets, and based
upon our experience to date with demand response in the ISO- and RTO-
administered markets, the Commission proposes to address compensation
for demand response resources participating in organized wholesale
energy markets generically in this proceeding. The Commission proposes
to add section 35.18(g)(1)(v) to our regulations to establish a
specific compensation approach for demand response resources
participating in organized wholesale energy markets (such as the day-
ahead and real-time markets administered by the ISOs and RTOs). Under
the proposed section, each Commission-approved ISO and RTO that has a
tariff provision providing for participation of demand response
resources in its energy market must pay demand response resources, in
all hours, the market price for energy, i.e., full LMP, for demand
reductions made in response to price signals.\37\
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\37\ This provision will not apply to programs that ISOs and
RTOs administer for reliability or emergency conditions. In those
situations, the ISO and RTO tariffs may provide compensation that is
not necessarily related solely to energy prices but is designed to
prevent involuntary load curtailment.
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12. The Commission proposes to take this action generically to
address issues that are common to the RTO and ISO markets in a
coordinated manner in a single proceeding. As discussed further below,
we believe paying demand response resources the LMP in all hours will
compensate those resources in a manner that reflects the marginal value
of the resource to each RTO and ISO, comparable to treatment of
generation resources. This will improve the competitiveness of the
organized wholesale energy markets and, in turn, help to ensure that
energy prices in those markets are just and reasonable.
13. As explained above, we have previously accepted a variety of
ISO and
[[Page 15366]]
RTO proposals for compensation for demand response providers, with
different levels of payment. As we have gained experience with these
programs, we are concerned that the current compensation levels appear
to have become unjust and unreasonable. Providers may submit price and
quantity bids into the organized wholesale energy markets and the
market clears at the marginal resource yet they fail to compensate
demand response at levels that reflect the marginal value of the
resource being used by the RTO or ISO to balance supply and demand. The
current wholesale compensation levels may therefore be leading to
under-investment in demand response resources, resulting in higher, and
unjust and unreasonable, prices in the organized electricity markets.
To help ensure that wholesale prices in ISOs and RTOs remain just and
reasonable, we are proposing to require each ISO and RTO to pay the LMP
to demand response providers participating in the organized wholesale
energy markets.
14. It is a well-established practice in the organized wholesale
energy markets to rely on LMPs to encourage efficient behavior by
market participants. The LMP represents the value of additional supply
or reductions in consumption at each node within the RTO or ISO and,
thus, reflects the marginal cost of the last unit necessary to
efficiently balance supply and demand.\38\ The LMP is therefore the
primary mechanism for compensating generation resources clearing in the
organized electricity markets, which the Commission has found
encourages ``more efficient supply and demand decisions in both the
short run and long run.'' \39\
---------------------------------------------------------------------------
\38\ See ISO New England, Inc., 100 FERC ] 61,287, at P 71
(2002) (LMP ``provide[s] appropriate price signals indicating the
value of additional resources or conservation at each node in the
transmission system''); Cleco Power LLC, et al., 103 FERC ] 61,272,
at P 67 (2003) (``It is widely observed that markets work
efficiently when prices reflect marginal costs, i.e., when the
market price will be equal to the cost of bringing to market the
last unit necessary to balance supply and demand.'').
\39\ See New England Power Pool, 101 FERC ] 61,344, at P 35
(2002).
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15. Given that the LMP represents the marginal value of the
resource being used by the RTO or ISO to balance supply and demand, it
follows that the LMP should be paid to any resource clearing in the
RTO's or ISO's energy market. In balancing supply and demand, a one
megawatt reduction in demand is equivalent to a one megawatt increase
in energy for purposes of meeting load requirements and maintaining a
reliable electric system. The ISO or RTO is able to avoid dispatching
suppliers with higher bids, be they generation or demand response, by
accepting a lower bid to either reduce consumption or increase
generation. As Dr. Alfred E. Kahn noted in a recent PJM proceeding in
Docket No. EL09-68-000, consumers offering to reduce consumption should
be induced ``to behave as they would if the market mechanisms alone
were capable of rewarding them directly for efficient economizing.''
\40\ This is because ``the (incremental) costs saved by curtailments in
demand clearly will be LMP--including the marginal costs of generation.
So, in the end the LMP inducement is the economically correct one.''
\41\ This appears to be true across all ISOs and RTOs and, therefore,
it appears appropriate to compensate both generation and demand
response resources participating in the organized wholesale electricity
markets at the LMP.
---------------------------------------------------------------------------
\40\ Kahn Affidavit at 4.
\41\ Id. at 3.
---------------------------------------------------------------------------
16. Ultimately, the markets themselves will determine the level of
generation and demand response resources needed to balance energy and
demand. The level of compensation provided to each resource, however,
affects its willingness and ability to participate in the market.\42\
For example, demand response resources need to make investments in
technologies to enable participation in the organized wholesale energy
markets, as well as incur costs in changing their operations in order
to provide demand response. In those markets paying less than the LMP
to demand response resources, such resources have less revenues to
support investment in demand response-enabling technology (such as
metering equipment, energy usage monitors and process controls)
necessary to enable more wholesale market participation by demand
response resources. Where compensation for demand response is
inadequate, demand response resources will be hesitant to invest in
demand response devices. Compared to existing compensation levels,
paying the LMP in all hours should allow more demand response resources
to cover their investment costs and increase their ability to
participate in the organized wholesale electric markets.
---------------------------------------------------------------------------
\42\ Generation and demand response resources have the potential
to earn other revenues through bilateral arrangements, capacity
markets where they exist, and ancillary services.
---------------------------------------------------------------------------
17. Increased levels of demand response participation, in turn,
should lead to lower clearing prices in the organized wholesale energy
markets. As the Commission explained in accepting PJM's Economic Load
Response Program:
Without a demand response mechanism, [an independent system
operator] is forced to work under the assumption that all customers
have an inelastic demand for energy and will pay any price for
power. There is ample evidence that this is not true. Many
customers, given the right tools, can and will manage their demand.
* * * A working demand response program puts downward pressure on
price, because suppliers have additional incentives to keep bids
close to their marginal production costs and high supply bids are
more likely to reduce the bidder's energy sales. Appropriate price
signals to customers thus helps to mitigate market power as high
supply bids are more likely to reduce the bidders' energy sales.
Suppliers thus have additional incentive to keep bids close to their
marginal production costs.\43\
\43\ PJM Interconnection, LLC, 99 FERC ] 61,227, at 61,939
(2002) (quoting PJM Interconnection, LLC, 99 FERC ] 61,139, at
61,573 (2002)).
18. Additionally, increasing the aggregate amount of demand
response resources in the organized wholesale energy markets will help
to move prices closer to the levels that would result if all demand
could respond to the marginal cost of energy. Paying the LMP to those
potential demand response resources who are capable of responding--but
who have not been participating as a resource due to inadequate
compensation--should bring those additional demand response resources
into the organized wholesale energy markets. But again, the markets
themselves will determine the appropriate level of demand response, and
generation, resources needed by the ISO and RTO to balance energy and
demand based on their relative bids into the markets.
19. We recognize that the appropriate level of compensation for
demand response resources participating in organized wholesale energy
markets has been the subject of debate. In various proceedings, some
parties have advocated payment of LMP minus components of the retail
rate, on the theory that such an approach permits all consumers to
react as if they were paying LMP.\44\ Some parties have argued that
payment of LMP is appropriate only during the most expensive hours,\45\
on the theory that
[[Page 15367]]
demand response will have the greatest impact during those hours in
which the aggregate supply curve is steep (i.e., when supply is less
elastic). Given the current barriers to demand response \46\ and the
evolving nature of the technology enabling demand response, a perfect
solution or payment scheme may not exist. We nonetheless believe that
paying LMP in all hours to the demand response resources that can
participate in the organized wholesale energy markets is the correct
approach at this time, because that payment reflects the marginal
effect of each demand response resource in the hour, just as the LMP
reflects the marginal effect of generation resources in each hour. LMP
is the marginal value of both demand response and generation in any
hour, regardless of whether it is morning or evening, daytime or
nighttime, weekday or weekend.\47\
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\44\ Professor William W. Hogan has argued, for instance, that
payment of LMP (without an offset for some portion of the retail
rate) over-compensates individual demand response providers and
might result in more demand response than is efficient. See
Attachment to Answer of Electric Power Supply Association, Providing
Incentives for Efficient Demand Response, William W. Hogan, October
29, 2009, submitted in Docket No. EL09-68-000.
\45\ See PJM's Transmittal Letter at 29 submitted in Docket No.
EL09-68-000.
\46\ A recent Commission Staff report details several barriers
to demand response, including regulatory barriers, such as lack of a
direct connection between wholesale and retail prices, lack of
dynamic prices, measurement and verification challenges, lack of
real-time information sharing, and ineffective demand response
program design; technological barriers, such as lack of advanced
metering infrastructure and the high cost of some enabling
technologies; and other barriers, such as lack of customer awareness
and education. Federal Energy Regulatory Commission Staff, A
National Assessment of Demand Response Potential (June 2009), found
at https://www.ferc.gov/legal/staff-refports/06-09-demand-response.pdf. In compliance filings submitted by RTOs and ISOs and
their market monitors pursuant to Order No. 719, as well as in
responsive pleadings, parties have mentioned additional barriers,
such as the inability of demand response resources to set LMP,
minimum size requirements, and others.
\47\ We note that in PJM, 17 percent of load reductions by
demand response resources for that year occurred between the non-
peak hours of 11 p.m. and 8 a.m. See 2008 State of the Market Report
for PJM, Volume 2, Table 2-93 at 103, found at https://www.monitoringanalytics.com/reports/PJM_State_of_the_Market/2008/2008-som-pjm-volume2.pdf.
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20. We, nevertheless, seek comment on the need to compensate demand
response acting as a resource in organized wholesale energy markets.
Commenters may address whether current compensation for demand response
providers acting as a resource in the organized wholesale energy
markets is adequately procuring demand response. We further solicit
comment on alternative approaches to compensating demand response
resources participating in organized wholesale energy markets, and the
merit of those approaches in comparison to the one proposed here. In
particular, we ask for comment on whether a reduction in consumption is
comparable to an increase in electricity production for purposes of
balancing supply and demand, and whether, therefore, demand response
providers and generators should receive comparable compensation. We
further seek comment on whether paying LMP to demand response resources
is comparable compensation or is more or less than comparable to
compensation paid to generation in the ISO and RTO energy markets. We
also request comment on whether payment of LMP should apply to all
hours, and, if not, the criteria that should be used for establishing
the hours when LMP should apply. Additionally, we seek comment on
whether requiring payment of LMP is appropriate across all ISOs and
RTOs, or whether variations among ISOs and RTOs justify varying levels
of demand response resource compensation. To that end, we further seek
comment on whether the Commission should allow regional variations for
an ISO or RTO that does not seek to compensate demand response
resources participating in the organized wholesale energy market.
21. Organized wholesale energy markets are evolving and, as such,
the rules and regulations related to those markets will continue to
evolve. This is no less so for demand response, as the markets, and the
types of demand response participating in them, continue to evolve.
Therefore, it may be necessary in the future for industry and the
Commission to reassess the appropriate method for compensating demand
response resources in organized wholesale energy markets.\48\
Accordingly, we also seek comment on whether, and under what
circumstances, the Commission should conduct periodic reviews of demand
response compensation and the criteria that should be used in making
such assessments.
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\48\ Indeed, the Commission's proposed action in this proceeding
is evidence of our continuing assessment of compensation for demand
response resources. In PJM Interconnection, LLC, 121 FERC ] 61,315
(2007), the Commission rejected a complaint that PJM's existing
compensation for demand response (LMP minus the generation and
transmission components of the retail rate) was unjust and
unreasonable, finding that there was insufficient evidence at the
time to make such a finding. As we have acquired more experience
with the participation of demand response resources in the organized
wholesale energy markets, we are concerned that compensation for
demand response in PJM and other RTO and ISO markets may no longer
be just and reasonable.
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22. With specific regard to the proposed regulatory text set forth
below, we seek comments on whether terms such as ``expected levels,''
``price signals,'' and ``market prices'' are sufficiently defined.
23. Because we are addressing generically in this rulemaking
proceeding the same issues raised in the PJM proceeding in Docket No.
EL09-68-000, that docket is hereby terminated.\49\ The Commission will
take administrative notice of the record in the PJM proceeding so that
parties in that proceeding need not refile affidavits or other evidence
introduced there.
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\49\ See Michigan Pub. Power Agency v. Midwest Indep.
Transmission Sys. Operator, Inc., 128 FERC ] 61,268, at P 29 n.47
(2009) (Commission has discretion to decide when and where it will
resolve an issue).
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III. Information Collection Statement
24. The Office of Management and Budget (OMB) requires that OMB
approve certain information collection and data retention requirements
imposed by agency rules.\50\ Therefore, the Commission is submitting
the proposed modifications to its information collections to OMB for
review and approval in accordance with section 3507(d) of the Paperwork
Reduction Act of 1995.\51\
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\50\ 5 CFR 1320.11(b) (2009).
\51\ 44 U.S.C. 3507(d) (2006).
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25. The Office of Management and Budget's (OMB) regulations require
approval of certain information collection requirements imposed by
agency rules. Upon approval of a collection(s) of information, OMB will
assign an OMB control number and an expiration date. Respondents
subject to the filing requirements of a rule will not be penalized for
failing to respond to these collections of information unless the
collections of information display a valid OMB control number.
26. The Commission is submitting these reporting requirements to
OMB for its review and approval under section 3507(d) of the Paperwork
Reduction Act. Comments are solicited on the Commission's need for this
information, whether the information will have practical utility, the
accuracy of provided burden estimates, ways to enhance the quality,
utility, and clarity of the information to be collected, and any
suggested methods for minimizing the respondent's burden, including the
use of automated information techniques.
Burden Estimate: The Public Reporting burden for the requirements
contained in the NOPR is as follows:
[[Page 15368]]
----------------------------------------------------------------------------------------------------------------
Number of Number of Hours per Total annual
Data collection respondents responses response hours
----------------------------------------------------------------------------------------------------------------
FERC-516
Transmission Organizations with Organized 6 1 6 36
Electricity Markets........................
----------------------------------------------------------------------------------------------------------------
Information Collection Costs: The Commission seeks comments on the
costs to comply with these requirements. The Commission has projected
the average annualized cost of all respondents to be the following: 36
hours @ $220 per hour = $7,920 for respondents. No capital costs are
estimated to be incurred by respondents.
Title: FERC-516 ``Electric Rate Schedule Tariff Filings''.
Action: Proposed Collections.
OMB Control No: 1902-0096.
Respondents: Business or other for profit, and/or not for profit
institutions.
Frequency of Responses: One time to initially comply with the rule,
and then on occasion as needed to revise or modify.
27. Necessity of the Information: The information from FERC-516
enables the Commission to exercise its statutory obligation under
Sections 205 and 206 of the FPA. FPA section 205 specifies that all
rates and charges, and related contracts and service conditions for
wholesale sales and transmission of energy in interstate commerce be
filed with the Commission and must be ``just and reasonable.'' In
addition, FPA section 206 requires the Commission upon complaint or its
own motion, to modify existing rates or services that are found to
unjust, unreasonable, unduly discriminatory or preferential. The
Commission needs sufficient detail to make an informed and reasonable
decision concerning the appropriate level of rates, and the
appropriateness of non-rate terms and conditions, and to aid customers
and other parties who may wish to challenge the rates, terms, and
conditions proposed by the utility.
28. This proposed rule, if adopted, would amend the Commission's
regulations to obligate ISOs and RTOs to pay the market price for
energy to demand response resources for demand reductions within each
respective ISO and RTO region. Requiring ISOs and RTOs to pay the
market price for energy to demand response resources for demand
reductions in response to price signals will potentially reduce the
market clearing price of electricity. The Commission has emphasized the
importance of demand response as a vehicle for improving the
competitiveness of organized wholesale electricity markets and ensuring
supplies of energy at just, reasonable and not unduly discriminatory or
preferential rates.\52\
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\52\ Order No. 719 at P 16.
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29. Internal review: The Commission has reviewed the requirements
pertaining to organized wholesale electric markets and determined the
proposed requirements are necessary to its responsibilities under
sections 205 and 206 of the FPA.
30. These requirements conform to the Commission's plan for
efficient information collection, communication and management within
the energy industry. The Commission has assured itself, by means of
internal review, that there is specific, objective support for the
burden estimates associated with the information requirements.
31. Interested persons may obtain information on the reporting
requirements by contacting: Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426 [Attention: Michael Miller,
Office of the Executive Director, Phone: (202) 502-8415, fax: (202)
273-0873, e-mail: michael.miller@ferc.gov]. Comments on the
requirements of the proposed rule may also be sent to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy
Regulatory Commission], e-mail: oira_submission@omb.eop.gov.
IV. Environmental Analysis
32. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\53\ The
Commission concludes that neither an Environmental Assessment nor an
Environmental Impact Statement is required for this NOPR under section
380.4(a)(15) of the Commission's regulations, which provides a
categorical exemption for approval of actions under sections 205 and
206 of the FPA relating to the filing of schedules containing all rates
and charges for the transmission or sale of electric energy subject to
the Commission's jurisdiction, plus the classification, practices,
contracts and regulations that affect rates, charges, classifications,
and services.\54\
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\53\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47897, FERC Stats. & Regs.
Regulations Preambles 1986-1990 ] 30,783 (1987).
\54\ 18 CFR 380.4(a)(15) (2009).
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V. Regulatory Flexibility Act Certification
33. The Regulatory Flexibility Act of 1980 (RFA) \55\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small
entities.\56\ ISOs and RTOs, not small entities, are impacted directly
by this rule.
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\55\ 5 U.S.C. 601-12 (2000).
\56\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act, which defines a
``small business concern'' as a business that is independently owned
and operated and that is not dominant in its field of operation. See
15 U.S.C. 601(3) (2000) (citing to section 3 of the Small Business
Act, 15 U.S.C. 632 (2000)). The Small Business Size Standards
component of the North American Industry Classification system
defines a small utility as one that, including its affiliates, is
primarily engaged in the generation, transmission, or distribution
of electric energy for sale, and whose total electric output for the
preceding fiscal years did not exceed 4 MWh. 13 CFR 121.202 (Sector
22, Utilities, North American Industry Classification System, NAICS)
(2004).
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34. California Independent System Operator Corp. (CAISO) is a non-
profit organization comprised of more than 90 electric transmission-
owning companies and generators operating in its markets and serving
more than 30 million customers.
35. New York Independent System Operator, Inc. (NYISO) is a non-
profit organization that oversees wholesale electricity markets serving
19.2 million customers. NYISO manages a 10,775-mile network of high-
voltage lines.
36. PJM Interconnection, LLC (PJM) is comprised of more than 450
members including power generators, transmission owners, electricity
distributors, power marketers, and large industrial customers, serving
13 States and the District of Columbia.
37. Southwest Power Pool, Inc. (SPP) is comprised of 50 members
serving 4.5 million customers in eight States and has 52,301 miles of
transmission lines.
38. Midwest Independent Transmission System Operator, Inc. (Midwest
ISO) is a non-profit organization with over 131,000
[[Page 15369]]
megawatts of installed generation. Midwest ISO has 93,600 miles of
transmission lines and serves 15 States and one Canadian province.
39. ISO New England, Inc. (ISO-NE) is a regional transmission
organization serving six States in New England. The system is comprised
of more than 8,000 miles of high-voltage transmission lines and several
hundred generation facilities, of which more than 350 are under ISO-
NE's direct control.
40. The Commission believes this rule will not have a significant
economic impact on a substantial number of small entities, and
therefore no regulatory flexibility analysis is required.
VI. Comment Procedures
41. The Commission invites interested persons to submit comments on
the proposed regulatory text that commenters may wish to discuss.
Comments are due 45 days after publication in the Federal Register.
Comments must refer to Docket No. RM10-17-000,\57\ and must include the
commenter's name, the organization they represent, if applicable, and
their address in their comments.
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\57\ Because this NOPR terminates Docket No. EL09-68-000,
comments should not refer to that proceeding.
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42. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at https://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
43. Commenters that are not able to file comments electronically
must send an original and 14 copies of their comments to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street, NE., Washington, DC 20426.
44. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.
VII. Document Availability
45. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (https://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
46. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
47. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at (202)
502-6652 (toll free at 1-866-208-3676) or e-mail at
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at
public.referenceroom@ferc.gov.
List of Subjects in 18 CFR Part 35
Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.
By direction of the Commission. Commissioner Moeller is
concurring in part and dissenting in part with separate statement
attached.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
In consideration of the foregoing, the Commission proposes to amend
Chapter I, Title 18 of the Code of Federal Regulations as follows:
PART 35--FILING OF RATE SCHEDULES AND TARIFFS
1. The authority citation for part 35 continues to read as follows:
Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.
2. Amend Sec. 35.28 by adding paragraph (g)(1)(v) to read as
follows:
Sec. 35.28 Non-discriminatory open access transmission tariff.
* * * * *
(g) * * *
(1) * * *
(v) Demand response compensation in energy markets. Each
Commission-approved independent system operator or regional
transmission organization that has a tariff provision permitting demand
response resources to participate as a resource in the energy market by
reducing consumption of electric energy from their expected levels in
response to price signals must pay to those demand response providers,
in all hours, the market price for energy for these reductions.
* * * * *
Note: The following material will not appear in the Code of
Federal Regulations.
UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION
Demand Response Compensation in Organized Wholesale Energy Markets,
Docket No. RM10-17-000
PJM Interconnection, L.L.C., Docket No. EL09-68-000
Issued March 18, 2010.
MOELLER, Commissioner, concurring, in part and dissenting, in part:
As our country's demand for energy increases, the reduction of
energy usage through demand response programs will play a critical role
in meeting our needs and it is my hope that this nascent industry will
thrive and succeed. In the Energy Policy Act of 2005, Congress
established a policy to encourage the use of demand response by: (1)
facilitating the deployment of technology to enable customers to
participate in demand response programs; and (2) eliminating
unnecessary barriers to demand response participation.\1\
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\1\ Energy Policy Act of 2005, Pub. L. No. 109-58 Sec. 1252(f),
119 Stat. 594 (2005).
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Even before this law was passed, this Commission supported similar
policies in the organized electric markets by encouraging the use of
price responsive demand during high priced energy periods.\2\
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\2\ PJM Interconnection, L.L.C., 99 FERC ] 61,227, at 61,943
(2002) see also Order No. 719 at P 16 (``Thus, enabling demand-side
resources * * * improves the economic operation of electric power
markets by aligning prices more closely with he value customers
place on electric power.'')
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Demand response is playing an increasingly critical role in our
nation's energy supply mix. Additional demand response has the
potential to produce more efficient market outcomes, contribute to a
cleaner environment,\3\ result in lower costs to customers, and help to
check market power since it provides a countervailing willingness to
reduce demand in the face of high prices.\4\ With respect to prices,
studies have shown that sometimes a small decrease in demand from
demand response resources during peak periods can significantly reduce
market prices. In sum, the benefits that demand
[[Page 15370]]
response resources can bring to the energy markets are proven and
significant.
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\3\ A recent report by the National Research Council, Hidden
Costs of Energy: Unpriced Consequences of Energy Production and Use,
provides estimates of the cost associated with air pollution as the
result of energy production.
\4\ California Indep. Sys. Operator Corp., 116 FERC ] 61,274, at
P 689.
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The initial success of demand response has resulted in a steady
maturation of the demand response industry. However, as the industry
continues to mature, we must ensure that our policies are properly
tailored to guide the development of demand response in a manner that
will result in economically-efficient outcomes. Moving too quickly to
reach a desired result can result in unintended consequences--and I
believe that today's decision to propose a standard payment could have
unintentional effects on both demand response participation and the
efficient operation of the organized markets over the longer term.
In today's notice of proposed rulemaking (NOPR), the majority
concludes that the Commission should require a standard payment to
compensate demand response resources. Specifically, the majority's
proposed outcome would be that these resources are paid the market
price (i.e., the locational marginal price or ``LMP'') for energy
reductions in all 8,760 hours of the year. This determination is
followed by questions such as whether other compensation designs could
also work; questions that I believe would have been more appropriately
asked prior to establishing this NOPR.\5\ For that reason, I believe
that a preliminary issuance (such as a Notice of Inquiry) should have
been established to collect and analyze the evidence in advance of
initiating a formal rulemaking proceeding.
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\5\ To the extent that this NOPR asks questions to determine
whether the proposed rule is just and reasonable, I concur.
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While the majority claims that it is ``concerned that compensation
for demand response in PJM and other RTO and ISO markets may no longer
be just and reasonable'', the NOPR lacks a thorough discussion of the
evidence that they relied upon to substantiate their concerns.\6\ The
NOPR also lacks a sufficient explanation of the ``experience'' that
FERC has recently gained that would otherwise support the conclusion
that the organized electric markets ``fail to compensate demand
response at levels that reflect the marginal value of the resource
being used by the RTO or ISO to balance supply and demand.'' \7\
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\6\ NOPR at n. 57. In support of the conclusion that
compensation may no longer be just and reasonable, the preamble
provides an example involving PJM's Economic Load Response Program
and the drop of settled demand reductions experienced after the
subsidy payments expired per the terms of PJM's tariff. NOPR at P
10. While the cited level of reduction is a fact, the PJM market
monitor stated that ``[w]hile the removal of the incentive program,
effective November 2007, may have reduced participation, the exact
role of the elimination of the incentive program is not known
because there were changes to other key factors which directly
impact participation.'' Citing Monitoring Analytics, Barriers to
Demand Side Response in PJM, at 22 (July 1, 2009). More recently,
the PJM market monitor recognized that between 2008 and 2009,
``[t]here were many factors contributing to the lower levels of
participation and lower revenues in the Economic Program, including
lower price levels in 2009, lower load levels, and improved
measurement and verification.'' Notably, while payments from the
Economic Program have fallen substantially since 2007, capacity
revenue for demand response has increased significant
