INSIDE THE BELTWAY: FERC Opens Wholesale Power Market to Negawatts

By Published On: March 18, 2011

In a long-expected move, federal energy regulators March 15 ordered regional transmission organizations to open their day ahead wholesale markets to demand response bidders that provide “negawatts” instead of “megawatts.” California has opened its market to demand response bidders, according to CAISO. The move--approved ahead of the commission’s regularly scheduled March 17 meeting--is meant to inspire more competition and efficiency in the power industry. FERC chair Jon Wellinghoff said the move would “provide more resource options” as well as “encourage new entry and innovation in energy markets and spur the development of new technologies.” He predicted that by creating more competition, demand response bidders would help check the cost of power for consumers. Commissioner Phil Moeller dissented. He fears the rule would require overpayment for negawatts that could create distortions that ripple through the economy. He said overpayments could provide an incentive for companies to shut down or limit their operations in a way that creates “job killing results.” Moeller further expressed concern that the new federal requirement could preempt states from moving to broad use of time-of-use pricing for power, which he indicated would be a more effective way to incentivize efficient use of energy in homes and businesses. Under the Federal Energy Regulatory Commission rule, demand-response bidders are to get paid at the market rate for their negawatts. That rate varies from place to place, based on calculation of what’s called the “locational marginal price,” which takes into account such factors as how power is produced, cost of delivery, and congestion on specific transmission facilities. FERC’s rule implements a provision of the Energy Policy Act of 2005 requiring elimination of barriers to participation of demand response in power markets. Under the rule, grid operators have to develop cost-effectiveness tests that show demand response participation in their markets lowers overall system costs. They have to file plans with FERC for opening their markets to negawatts by Sept. 21, 2012. In other action, FERC reaffirmed an order it adopted a year ago aimed at improving the reliability of the nation’s “bulk electric system.” The rule set national standards for defining and operating the bulk power system to prevent cascading blackouts that can move from one region to another. FERC noted that differences among grid operators in how they define what is part of the nation’s bulk system--for instance, which power plants and transmission lines--could diminish power supply reliability in times of system stress. The order defining the bulk system--plus a series of related orders--is aimed at getting the North American Electric Reliability Corp. and Western Electricity Coordinating Council to set consistent industry standards that improve national reliability.

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