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2 FERC orders seen pushing DR along in new markets

June 28, 2020
DR has been a factor in capacity markets since their inception, but with recent FERC Orders 745 and 755, it is starting to make its presence felt in energy and ancillary service markets too.

“We've been through a period where DR has proven itself out in capacity markets and now we're entering a phase, or an evolution of the market, where there's an opportunity for DR to perform in both the ancillary and energy markets,” Comverge CEO Blake Young told people attending the National Town Meeting on Demand Response & the Smart Grid yesterday in Washington, DC.

Order 745 injected more “value” for DR into wholesale energy markets, but it also seemed to awaken “the sleeping giant” of the generation sector, said the Assn for DR and the Smart Grid Executive Director Dan Delurey, whose group was running the event.

Generators have opposed paying full LMP for DR since the issue first bubbled up from the ISO/RTO stakeholder processes and EPSA, the national IPP lobby, has led the charge on trying to get Order 745 thrown out through the courts.

“If you look at the origins of the LMP market and the capacity market, in large measure the reason those markets exist today is because generation was seeking long term price signals -- essentially the business case for building new generation,” Young said.  “And what happened? We didn't see a tremendous amount of generation go on stream; to the stark opposite, what generators have done is take advantage of those market structures and leverage their baseload generation to create more margin, more profit.”

Where generation has fallen short, DR has stepped and grown significantly in those market structures, he added.

PJM's capacity market has produced thousands of MWs of new generation, noted Stu Bresler, VP of market operations & DR at the RTO.  The last capacity auction saw DR grow slightly, while several new plants - including some subsidized by states - cleared in the market thanks to cheap natural gas and coal plant retirements due to EPA regulations.

Opposition from generators to Order 745 and other things the DR industry seeks has been a major talking point for the DR industry, but it is far from the only set of interests on the other end of policies.

APPA and EPSA were both opposed to FERC Order 745, which is rare since the two lobbies have fundamental disagreements on organized wholesale power markets. Many state regulators have also opposed Order 745, with the California PUC signing onto an appeal of the rule.

“FERC Order 745, I think it begins to really encroach on the retail jurisdiction of the states,” Michigan PSC Commissioner Orjiakor Isiogu said later in the day yesterday.

Dictating payments of full LMP to retail customers is stepping into states' jurisdictions and picking winners and losers as to what kind of DR will win out.  Isiogu is a big backer of price-responsive DR using smart meters, as is the California PUC.

The order has not helped state commissions in the Midwest ISO footprint, like Michigan, to directly open up their retail markets to aggregators of DR such as Comverge.  In Order 719, FERC said that wholesale markets should be open to DR aggregators, but it left the ultimate decision on that up to the states.  In MISO, every state except for Illinois has so far refused to allow aggregators free reign on their retail customers, Isiogu said.

745 implementation has been wide

While the arguments about Order 745 have not entirely gone away, it has been implemented at every FERC-regulated ISO/RTO in the country.

PJM is not interested in continuing the argument. It opposed the rule as it was going through the process, but now it is only focused on implementing it, Bresler told us after his panel.

“We have a seen significant increase in demand response offered, both day-ahead and real time,” Bresler told us of the effects of Order 745.

Before April 1, PJM had a “negligible amount” of DR that was offering into its day-ahead energy markets and now more than 800 MWs are trying to clear in those markets per day, he added.  In the real-time markets, PJM had about 400 MWs before April 1 and now that summer is here, more than 2,000 MWs of DR are competing in that market.

“If we dispatch demand response, it will reduce the price because we dispatched less generation,” Bresler told us.  “And the demand the response does have the opportunity to set price, but the more resources you have, the more competitive the price becomes.”

DR has some strong new competition with low natural gas prices, which have made their effects felt in wholesale energy markets, as well.  Average LMPs have plummeted since the fuel reached a high in 2008.
Gas prices are so low now that sometimes gas peakers, which are DR's main competition in the energy market, have started to be treated like intermediate power plants, said Dominion Senior Vice President for Alternative Energy Solutions Mary Doswell.

© 2012 Modern Markets Intelligence Inc..  IMPORTANT: This article was reproduced from the June 28, 2020 issue of Smart Grid Today with the limited permission of the owner.  To view the full story on Smart Grid Today’s website, please visit


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