On 21 June 2005 a large number of policy makers, energy companies, technology providers and demand response experts gathered in Washington, DC to talk about what the role of demand response is and should be in the US, and what barriers stand in the way of increasing demand response activity.
The occasion was the first-ever National Town Meeting on Demand Response, put on by the US Demand Response Co-ordinating Committee (DRCC) – a nonprofit organisation started in 2004 at the request of the US Department of Energy, to develop and disseminate new information and tools on demand response, and to coordinate the exchange of expertise and experience among various U.S. audiences. The DRCC is also the official US entity participating in the multi-country demand response project of the International Energy Agency (IEA).
The National Town Meeting was co-sponsored by the Department of Energy (DOE), the Federal Energy Regulatory Commission (FERC), the Environmental Protection Agency (EPA), the National Association of Regulatory Utility Commissioners (NARUC) and the National Association of State Energy Officials (NASEO).
The idea behind the Town Meeting was to bring interested parties together – not just to hear presentations about demand response programmes and technologies, but to actively debate the issues that face demand response in the US. The Town meeting was also designed to address the fact that the electricity market and industry across the US varies in many ways, ranging from utility type to whether a competitive market exists or a traditional vertically integrated fully regulated structure is in place.
The entire afternoon session of the event was conducted in ‘round-table’ format, with parties from around the country who represented the different segments of the industry and market taking part. They included government officials, utility executives, regional transmission system operators, electricity consumers, electricity retail markets, energy efficiency advocates, consumer advocates and demand response technology and service providers. Instead of making individual presentations, panellists responded to questions from a facilitator, asked questions of each other, and debated various issues among themselves.
The entire event was streamed over the Internet in a web cast. Over 50 different locations around the US participated, and they were able to watch the entire proceedings and ask questions of the speakers and panellists during the day.
MAKING DR HAPPEN
The morning session featured a number of major policy officials making individual presentations on the topic “Where is US policy on demand response headed – where should it be headed?”. Congressman Rick Boucher, author of the smart metering and demand response provisions in the Federal Energy Bill that was recently signed into law by President Bush, explained his provisions and talked about how they were designed to get both states and utilities moving on demand response. He described them as putting new requirements on utilities to offer demand response, and on states to conduct proceedings on demand response and advanced metering.
FERC Chairman Pat Wood chose the National Town Meeting for his last public appearance before his departure from the FERC on June 30. Wood, who during his four year tenure pushed for system operators to increase their demand response efforts, noted that the key to demand response was for state policy makers to address it, given that there was only so much that federal legislators and regulators could do when it came to retail rates.
This idea of the need for states to tackle demand response proved to be a common theme for the morning. Rick Morgan, Commissioner with the District of Columbia Public Service Commission and David O’Connor, Commissioner of the Massachusetts Department of Energy Resources, were examples of state policy makers who echoed the call for state leaders and stakeholders to work together to not just talk about demand response, but to begin the process of making it happen.
BALANCING COMPETING ISSUES
Another interesting perspective was provided by Commissioner Bob Lieberman of the Illinois Commerce Commission. Appointed to the Commission just recently, Lieberman was formerly the head of a local community organisation that is known for operating an innovative real time pricing programme in Chicago. Lieberman reflected on his transition and noted the challenges he faces in his new position of trying to balance all the competing issues and stakeholder demands in a way that will allow demand response to be fostered.
The theme of ‘getting it done at the state level’ continued during the afternoon roundtable. An example was comments from system operator representatives to the point that demand response programmes operated by them were only part of the solution, and that even where a system operator and wholesale demand programmes did exist, it is still necessary for state policy makers to take steps to put retail demand response in place in order for its full potential to be captured.
The Town Meeting also showed the different contexts in which parties view demand response. To some, it means providing market-based price signals to customers and then ‘getting out of the way’. Those who supported this school of thought expressed surprise at the amount of discussion about ‘programmes’ being run by utilities, and noted it sounded like the ‘old days’ of DSM.
Other parties offered two counterpoints. While agreeing with the logic of offering price signals to customers, they noted first that not all sections of the US have an open market, and so demand response should be viewed in the context of a demand side management programme portfolio that can be offered customers. Secondly, it was noted that even in an open market, research has indicated that customers are looking for help from their utility or power provider and that that help, particularly in the early years of demand response, can come in the form of programmes.
In a related issue area, retail marketing representatives at the round-table were asked why they were not supplying demand response offerings, in particular dynamic pricing products. Discussion on this topic then focused on the need for the market for the basic electricity commodity to be operating free and clear of the legacy of transitional offers and default service that has undercut the ability of marketers to compete, at least in the mass market sector. The suggestion was made that once customers are truly exposed to the wholesale price of electricity in competitive wholesale markets, dynamic pricing offers would start to be introduced.
In a similar vein, opinions were put forth – particularly from consumer representatives – on whether or not customers should be put on time-based pricing, including under a default service tariff, and allowed to opt out at any time, or whether customers should opt in. Pointed debate ensued over why both of these options should not be considered voluntary.
Another point of debate among the participants was the differences and similarities between demand response and energy efficiency. One specific point raised was whether the time value of a kWh saved should begin to be considered in the determination of value and awarding of credits, as states in the US begin to look at including efficiency and demand response in renewable portfolio standards.
“Town Meeting” is a practice used by local governments in many parts of the US. It involves the citizens of a city or town getting together to discuss and debate issues which confront the locality, and to make decisions en masse. This governmental format is known for allowing all parties to have a say on an issue, and helping to make decisions on the community’s behalf.
VALUATION A KEY THRESHOLD AREA
Valuation was a major issue for the round-table throughout the afternoon. Everyone agreed that this was a key threshold area for demand response and that additional research and work was needed to come up with tools, methodologies and so on that regulators, electricity providers and demand response providers can use. It was noted that this is one of the primary areas of focus for the demand response resources project of the IEA, and that a specific deliverable on this topic would be forthcoming in the US by way of the DRCC’s participation in the IEA project.
One of the ways to value demand response put forth by some at the Town Meeting was the resource planning process, where a demand side resource can be measured against a supply side resource in the context of a long-range plan to meet future demand. There was general agreement on this point, but it was also noted that under the restructuring model used by most states in the US, the responsibility for resource planning, which used to reside with a vertically integrated utility in those states, may not be incumbent on any party at present.
Another topic which was high on many of the participants’ list of challenges that need to be addressed was that of disincentives to utilities to undertake demand response. Several aspects of this were noted, but most were part of the overarching issue that has become known in the US as ‘throughput’. This term refers to the potential loss of profits to a utility where a revenuebased earnings model and rate design is used. While participants did not resolve this issue, there was consensus for the most part that utilities in both restructured and unrestructured markets needed not only to be able to recover costs and not be harmed financially by demand response, but should also be provided with incentives to introduce the concept.
Many other issues were discussed in the Town Meeting, and most participants voiced their support for additional meetings, asking that more time be allocated to discussions so that consensus on issues could be achieved. The DRCC is working on plans to do just that.
The archive of the web cast is available, together with copies of the presentations given by the policy-makers in the morning session. Visitors to the site can also sign up to be notified of future activities of the DRCC, including future events such as the Town Meeting.
ABOUT THE DRCC
Members of the U.S Demand Response Co-ordinating Committee include American Electric Power, National Grid, NYSERDA, Midwest ISO, Southern Company, NYISO, Salt River Project, ISO-New England, Southern California Edison, PJM Interconnection, Pacific Gas & Electric, San Diego Gas & Electric and the Demand Response Research Center. DOE, FERC, EPA and
NARUC all provide representatives to the DRCC’s Advisory Committee.
The DRCC has adopted the following definition of demand response:
Providing electricity customers in both retail and wholesale electricity markets with a choice whereby they can respond to dynamic or time-based prices or other types of incentives by reducing and/or shifting usage, particularly during peak periods, so that these demand modifications can address issues such as pricing, reliability, emergency response, and infrastructure planning, operation, and deferral.