- Estimation of how much of the potential can be achieved within those time horizons, accompanied by specific policy recommendations, including options for funding and/or incentives for the development of demand response;
- Identification of barriers to demand response programs offering flexible, non-discriminatory, and fairly compensatory terms for the services and benefits made available; and
- Recommendations for overcoming any barriers.
Ensure appropriate investment in transmission and generation infrastructure;
Recognize and respect regional industry differences and preferences;
Encourage cost-effective and not overly complex regional solutions;
Support rational long-term generation resource arrangements that are in turn supported by long-term transmission service provided at just and reasonable rates;
Foster well-functioning wholesale electric markets; and
Ensure that public utility sellers of power at market-based rates
charge “just and reasonable” prices.
EXCERPT FROM THE INTRODUCTION:
The Federal Energy Regulatory Commission’s Supplemental Notice of Proposed Rulemaking (NOPR) addresses the question of proper compensation for demand response in organized wholesale electricity markets. Assuming that the Commission would proceed with the proposal “to require tariff provisions allowing demand response resources to participate in wholesale energy markets by reducing consumption of electricity from expected levels in response to price signals, to pay those demand response resources, in all hours, the market price of energy (also referred to as the ‘locational marginal price’ or ‘LMP’) for such reductions,” the Commission posed questions about applying a net benefits test and rules for cost allocation.
There is now an extensive record in this matter, and I have written on the various issues. The purpose of the present paper is to summarize critical points and pose implications for the issues of net benefit tests and cost allocation. The limited time of the technical conference format dictates a certain brevity, referring to the prior submissions for a fuller exposition. My comments highlight several questions: Why are we here? Why is this subject so confusing? Why are retail rates relevant? How can we match ends and means? Do we need a net benefits test? How should we allocate costs? Where should we go from here?
The Commission’s Supplemental NOPR did not address the underlying arguments presented in response to the original NOPR in this matter. But many of the basic issues in considering net benefits tests and cost allocation arise from the fundamentals that the Commission should address. Despite the important role that LMP plays in successful market design, the Commission should not assume that paying LMP is always appropriate.
EXCERPT FROM THE EXECUTIVE SUMMARY:
Section 529 (a) of the Energy Independence and Security Act of 20071 (EISA 2007) requires the Federal Energy Regulatory Commission (Commission or FERC) to conduct a National Assessment of Demand Response Potential (Assessment) and report to Congress on the following:
• Estimation of nationwide demand response potential in 5 and 10 year horizons on a State-by-State basis, including a methodology for updates on an annual basis;
Court decision in the case of Illinois Commerce Commission vs. Federal Energy Regulatory Commission, decided Augut 6, 2009 by the United States Court of Appeals for the Seventh Circuit.
Pursuant to Subtitle A (Reliability Standards) of the Electricity Modernization Act of 2005, which added a new section 215 to the Federal Power Act (FPA), the Commission is proposing to amend its regulations to incorporate:
(1) Criteria that an entity must satisfy in order to qualify to be the Electric Reliability Organization (ERO) that will propose and enforce Reliability Standards for the Bulk-Power System in the United States, subject to Commission approval;
(2) Procedures governing enforcement actions by the ERO and the Commission;
(3) Criteria under which the ERO may enter into an agreement to delegate authority to a Regional Entity for the purpose of proposing Reliability Standards to the ERO and enforcing Reliability Standards;
(4) Procedures for the establishment of Regional Advisory Bodies that may provide advice to the Commission, the ERO or a Regional Entity on matters of governance, applicable Reliability Standards, the reasonableness of proposed fees within a region, and any other responsibilities requested by the Commission;
(5) Regulations governing the issuance of periodic reliability reports by the ERO that assess the reliability and adequacy of the Bulk-Power System in North America; and
(6) Regulations pertaining to the funding of the ERO.
EXCERPT FROM THE EXECUTIVE SUMMARY:
Almost all bulk electric power in the United States is generated, transported and consumed in an alternating current (AC) network. Elements of AC systems produce and consume two kinds of power: real power (measured in watts) and reactive power (measured in volt-amperes reactive, or var). Real power accomplishes useful work (e.g., running motors and lighting lamps). Reactive power supports the voltages that must be controlled for system reliability.
Reactive power supply is essential for reliably operating the electric transmission system. Inadequate reactive power has led to voltage collapses and has been a major cause of several recent major power outages worldwide. And while the August 2003 blackout in the United States and Canada was not due to a voltage collapse as that term has been traditionally used, the final report of the U.S.-Canada Power System Outage Task Force (April 2004) said that “insufficient reactive power was an issue in the blackout.” Dynamic capacitive reactive power supplies were exhausted in the period leading up to the blackout.
The Commission invites all interested persons to file comments addressing establishing long term transmission rights in electricity markets operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).
Excerpt from the Executive Summary:
It is time to take stock of the Federal Energy Regulatory Commission’s (“FERC”) electric restructuring policies. APPA believes substantial “mid-course corrections” to FERC’s policies are needed to fix existing Regional Transmission Organizations (“RTOs”) and to encourage non- RTO alternatives in those regions where RTOs are not likely to form.
To protect electric consumers, as the Federal Power Act (“FPA”) requires, FERC should reorient its policies to make sure electric consumers in fact— not just in economic theory—benefit from electric restructuring.
Excerpt from the Introduction:
Electric-industry restructuring has derailed. The massive blackout of August 14, 2003 certainly was not needed to underscore the point, but it adds urgency to the effort to find solutions. Wholesale markets continue to evolve slowly and erratically but are impeded by state- federal conflict, regulatory and legislative uncertainty, malfeasance, poor credit and outright collapses, of which Enron is only the most notorious. FERC’s efforts to promote more efficient markets through regional transmission organizations and a wholesale market platform offer promise, but have generated confusion and opposition. In the last five years, increased generation competition has elicited more than 100,000 megawatts of gas- fired peaking and baseload capacity, which has contributed both to a period of relatively low wholesale prices in many regions and increased exposure to gas price volatility across the system. But competitors’ losses have created substantial uncertainty about how quickly and on what terms capital markets will support additional investment throughout this sector. Indeed, investment in all categories of electricity infrastructure is down significantly, in part because of surplus capacity conditions in certain regions, but also because of uncertainty concerning which entities have the responsibility for identifying and making investments in the transmission and distribution networks, and uncertainties about how the associated costs will be recovered. A challenge in reviving these capital flows is to clarify prospects for cost recovery and reward: for example, when and on what terms will distribution utilities have the ability to enter into long-term contracts with generation service providers; how will distribution utility responsibilities interact with the opportunities created for competitive retail suppliers in states with retail competition; who has the responsibility for identifying needed enhancements to the transmission network; how will they be paid for securing them; and who will pay? The August 2003 blackout is a reminder of how much hinges on finding practical answers promptly.
Excerpt from theIntroduction:
The era of electric and natural gas industry restructuring ushered in by Congress and implemented by FERC and state public utility commissions has now been in place for more than five years. In the wake of these momentous shifts in regulatory policy, electric and gas companies have responded with fundamental changes in their business strategies. Some have decidedly “stuck to their knitting,” while others have merged, sold assets, invested overseas and in new businesses, and in some cases completely abandoned their historic business roots. With the economic downturn, the collapse of merchant generators and the decided slowdown in industry restructuring, the time is opportune to examine corporate winners and losers from this unprecedented round of industry restructuring.
Winners and losers in the battle of restructuring can be measured from a variety of perspectives. The major constituents, however, are clearly shareholders and investors on one hand and consumers on the other. The focus of this analysis is the shareholder. In examining the impacts on shareholders, we look to a variety of related metrics that speak to financial performance.
Our analysis focuses on total shareholder return for the group of 64 companies that compose the Fortune 1000 energy companies.2 Within this mix is a combination of utilities, pipelines, energy merchants and independent generators with diverse business strategies. Aligning companies with their returns to shareholders paints a dramatic picture of widely differentiated financial performance. The degree of variation is particularly notable in light of an industry once noted for its stable returns appealing to the most conservative investors.