States can prime the demand for demand response, officials say


By: Peter Behr

May 28, 2020

State regulators and their utilities can press ahead with their own policies on electricity demand response, if current federal policy on these energy conservation programs is invalidated, several state officials predicted during an energy conference yesterday. But if states take the lead, the results will track widely divergent state energy policies, they added.

"I think whatever happens, we'll work our way around it," said Michael Picker, president of the California Public Utilities Commission, speaking of the U.S. Supreme Court's forthcoming review of the Federal Energy Regulatory Commission's contested Order 745 rule.

FERC mandated that demand-response (DR) providers, whose programs reduce electricity demand when power networks are stressed, should be paid the same as generators that supply electricity. A lower federal court held that FERC overstepped its authority in applying the Federal Power Act to retail electricity markets that are the domain of state regulators.

The high court is expected to hear the case this fall, stepping into an electric power sector arena where historic federal and state policy demarcations are challenged by changing technology and consumer preferences.

"I see demand response really blossoming" in myriad ways, said Nancy Lange, commissioner of the Minnesota Public Utilities Commission. "We'll kind of work our way around the ruling." The two regulators were panelists at the National Town Meeting on Demand Response and Smart Grid in Washington, D.C.

Mary Doswell, senior vice president for retail and alternative energy solutions at Dominion Resources, was one of the few speakers at the session from a company in the energy generation business, the part of the industry that sees most to lose from demand-response initiatives -- a group of generators mounted the challenge to Order 745.

Doswell predicted that demand-response strategies will go beyond shaving peak demand -- its primary purpose today -- to take advantage of new grid technologies, giving customers more control over electricity usage during the entire day.

The overall demand for electric power from utilities has flattened out, but the peak demand is rising, said Bob Burns, commissioner of the Arizona Corporation Commission. If utilities want to deal with peak loads, they have to shrink air conditioning use, and demand response is a means to that end, he added.

Lange seconded Burns' view on demand response as an answer to the challenge of managing peak loads, particularly as expansion of variable renewable energy upsets traditional grid operations. "That is where demand response is going to play a critical role," Lange said.

A study last year by Navigant Research predicted a sevenfold surge in resident demand-response programs globally to $2.3 billion in 2023, led by automated electricity management technologies such as smart thermostats, microgrids and electric vehicle charging.

"We are counting on it," said Caroline Choi, vice president for energy and environmental policy at Southern California Edison, a demand-response pioneer. The state expects it; customers want it, she said. But there are questions.

Reliability questions

"We are looking at reliability impacts," Choi said. "We are trying to use DR for reliability purposes and plan for that going forward."

Is it something utilities we can rely on multiple times in emergencies? Will customers remain eager to reduce air conditioning demand in the fourth or fifth day of a heat wave? Will greater incentives be required in such circumstances? she asked.

"We see it [DR] growing in part driven by technology as costs continue to come down," said Chris King, global chief regulatory officer of smart grid solutions at Siemens Smart Grid. Five years ago, there was no discussion of smart thermostats. Now, they are an economic option for consumers, he said.

Gary High, senior vice president of Landis+Gyr, a smart grid equipment vendor, urged that the definition of demand response needs to expand to include energy storage.

Seth Frader-Thompson, CEO of EnergyHub, an Internet cloud-based provider of demand response, energy management and other services, said he sees demand-response programs morphing into the area of grid operations and being used during the day, not just at peak demand periods.

Richard Kauffman, chairman of energy and finance for New York state, predicted that demand-response and energy conservation applications will become embedded in energy services that customers will purchase, such as home energy automation, even if they don't carry an explicit DR label. "The whole solution set of energy things can be monetized," Kauffman said.

Steve Hambric, vice president for strategic sales and operations at Comverge, an energy efficiency and demand-response services provider, said demand-response programs need to move to more of a pay-for-performance model, with incentives when DR delivers as promised and consequences when it doesn't. That "will give [DR] vendors real skin in the game," Hambric said.

But some speakers cautioned that the industry faces a selling job to persuade a big segment of the population that demand-response initiatives are in their interest. For example, despite evidence that consumers can benefit when retail electricity rates are tied to swings in wholesale power rates during the day, time-of-day rates are an electric policy orphan.

Dan Delurey, president of the Association for Demand Response and Smart Grid, the town meeting moderator, polled meeting participants on why they thought time-of-day rates weren't catching on.

The No. 1 reason, with a 43 percent of responses, was the lack of evidence that customers want it or will accept it.

"It's just sort of a weird conundrum," said Donna Nelson, chairwoman of the Texas Public Utility Commission. "I think customers start caring about it when their rates go up." Otherwise, "they don't want to take the risk that goes with time-based pricing."

DR applications remain largely uncharted territory, speakers said. The idea is "to make a lot of little mistakes as frequently as you can," said California's Picker. Fail quickly; learn quickly.

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