Guest Interview with Chairman Jon Wellinghoff (FERC)

Have you always worked in Energy? What drew you to the field in terms of your career work?
I have always pretty much worked in energy - for at least 90% of my career. I started out of law school looking for a job and was doing research in some minor cases in Reno, NV. I happened to run into a state legislator who suggested I talk to the then-Chairman of the Nevada PUC. I talked to him and he hired me and assigned me to another commissioner. I became his legal assistant, and that’s how I started out. I’ve always been interested in technology, and the interface between law and technology, and I think energy is one of those areas where you get to put those things together.

You previously worked at the State level. How do you feel about the processes of policymaking at that level compared with the federal level?
I think it has been very important for me and extremely useful for me to have worked at the state level on energy policy. I did work in Nevada and in other states on renewable portfolio standards, integrated resource planning, and other things. This gave me a good grasp of how state commissions and legislators work on state energy issues and how they affect state economies and the interests of states. When I came to FERC I had a great appreciation for their particular area of need – state jurisdiction, state interests, and preserving their control over their own energy futures.

I also served as the Consumer Advocate in Nevada, and in that position I initiated state policy actions on integrated resources planning and on renewable portfolio standards. I also worked on those things when I was in private practice. Before I took my position at FERC in 2006, the majority of my career was spent in private practice working for individual clients on energy policy initiatives.

How do you feel about the job FERC has done to-date on DR?
I think FERC has done a lot with respect to trying to provide direction to the wholesale market on ways it can accommodate DR as a resource, and also ensuring it can be considered an equal resource to the supply side resources in markets. I think we’re doing that in a very robust way that is effective. FERC did a lot with Order 745, regarding DR in energy markets and ensuring they get paid the full LMP in those organized wholesale markets where they do have DR for energy resources. We’ve also done things like looking at DR and other distributed resources that can provide fast response regulation under Order 755. This has helped those markets recognize the high quality of service that can be provided by things like DR, batteries, flywheels, and other distributed resources. This recognizes the value that those services can provide.

I think we at FERC have continued to look under every stone for ways to advance DR. Once thing I’ve spoken about recently is the release of a few analytical studies that suggest that 1 MW of DR might actually be worth 1.2 to 1.4 MW of central station generation capacity. That 1.2 to 1.4 multiplier is one that should be recognized in a market structure, and it may already be recognized in some markets like PJM. We are initiating some internal processes within FERC to look at that issue to determine if a resource like DR is providing more value and should be recognized.

Do you think that FERC has reached its limit in terms of what it can do on DR and Smart Grid, and that the rest is up to the States?
I don’t think it has. I think there are things we can do to continue to look for value in these distributed resources, including DR. That value needs to be revealed and incorporated and internalized into the markets. A problem with markets is that that many values are externalized, and we need to instead reveal these values and costs and internalize them so the markets function more efficiently. I don’t think we’ve nearly reached the end of our road with respect to the DR issue. Especially given the fact that technologies are rapidly advancing that are going to allow us to see more opportunities for DR to be participating in the markets at much lower customer levels all the way down to the residential consumer level. I think you’re going to see the ability for DR to be an effective participant not only to lower consumer levels but with respect to consumers of all levels having a wider ability to be able to respond to whole sale prices. This is an issue for FERC, and also for the state retail regulators (i.e. to allow customers to have those prices revealed to them and allow them to be able to respond to them and benefit from that response economically). With that regulatory opportunity, in additional to the technological opportunity, customers can participate in a more direct way. Customers can thus interface with wholesale prices and benefit from them.

Just as better technology is allowing more resource extraction on the supply side, we have the same thing happening with better technology allowing better extraction on the demand side. The efficiencies are improving on both sides. You have wind turbines that can go into a place that could only extract capacity at 20-25% and they can now do over 30% because of the turbine design. Solar PV systems were only 10-12% efficient and now some exceed 20%, but with costs below those previous. There are efficiencies on the supply side in both traditional and new renewable systems. The same thing is happening on the demand side technologies with DR taking things all the way down to a granular load level. Beyond that there is the interaction between loads.

What challenges do you think FERC has faced in trying to support the development of DR and smart grid?
I think the biggest continuing challenge is this interface between state and federal jurisdictions. We are trying to work with the states to ensure that the federal level isn’t frustrating policies at the state level and vice-a-versa. We believe we have provided adequate information to states to cooperate and coordinate with us so that consumers benefit. It can be frustrating when certain states believe that consumers shouldn’t have choices and shouldn’t be able to choose to participate in the wholesale DR markets. Their retail state jurisdictional regulations require the consumer to go through their distribution utility so they can’t participate.

States may not have the data to understand everything completely. There may be a belief that they are protecting the consumer to some degree, but I think a consumer can protect his or herself. Also states have the desire to protect other consumers that may be disadvantaged or harmed by those that do participate. I think it’s a matter of structuring processes so this doesn’t occur. Another issue is in states where there are parochial interests in that a state that doesn’t have retail access, and does have vertically integrated utilities, has an interest to not lose revenues by allowing customers to access wholesale programs that would bypass them. This is hanging on to an age-old model. I think it is more of the information lag about how consumers can benefit.

Coming from the Energy Efficiency field, how do you think policymakers, agencies, companies, etc can best go about breaking down the silos between EE and DR in government agencies and private companies?
Part of what I did in private practice was participating in the EE industry. I provided representation to clients and assisted them in doing EE upgrades to facilities. There was a silo issue then, and there is a real silo issue out there still today. This year I am going to be giving one of the keynote speeches at the ACEEE summer conference in CA. That is a leading EE group that is moving to pick up on the DR side but faster movement would be nice to see. DR historically (10 or so years ago) was thought of by many parties as load shifting. Many people believed that it did not improve efficiency. People thought it could shift energy use to less efficient generators and resources. That is not the case at all and I think that has been disproven, but I think there are vestiges of that in the EE industry.

Some people still think DR isn’t as “good” as EE. It is clear from lots of things I’ve seen and thought about that demand response, if done properly, can provide equal levels of efficiency improvements to the electric system as EE. The other part is that resources like DR can provide ancillary services to the grid which EE cannot because it is not dispatchable. As a dispatchable resource DR can provide ancillary resources not provided by generation resources like combustion turbines and other plants that have to vary their operational output and reduce their efficiency. DR can bring a great deal of efficiency to the table that EE can’t.

You also have to look at the deployment. We have been trying to deploy EE for 20-25 years in programs that utilities have tried to put in place. There has been some success, but we don’t have massive deployments of EE still. DR has the ability to be an enabler for deploying EE. This hasn’t been exploited enough. Because it can bid into wholesale markets and provide real time monetary payments to building owners who deploy it, DR has expanded very rapidly over the last 4-5 years. We haven’t seen EE expand at the same rate. If we can couple them (DR and EE) we have the ability to deploy EE faster by having DR pull it along. Some DR firms are seeing this as a business model. They can sell the customer on DR and the next step is to expand to see how to do EE. This is a new model we will see for deploying and scaling EE through DR.

What advice or guidance would you give to young professionals who are already in DR and smart grid, or those thinking about a career in these areas?
I would tell young professionals to seek out established firms that are doing DR and try to figure out how to help advance their business plan, like coupling EE with DR. I’d also try to seek out a company that has developed some type of a niche product that plays an integral part in the overall system of delivering DR to the customer. Work with that company and figure out how you can help that company integrate its product with the system.

But most importantly, make sure that you understand the whole electricity system. Don’t put yourself in a silo – like the DR or EE bucket. Make sure you understand EE and the market side and how DR and other resources fit into that market. See the whole strategic picture.