Demand Response and FERC Mandated Compensation Issues

Abstract

This paper describes a Demand Response (DR) pilot event performed at Sandia National Laboratories in August of 2011. This paper includes a description of the planning for the demand response event, sources of energy reduction during the event, the potential financial benefit to Sandia National Laboratories from the event, event implementation issues, and the event results. In addition, this paper presents the implications of the Federal Energy Regulatory Commission (FERC) Order 745, Demand Response Compensation in Organized Wholesale Energy Markets, issued in March 2011. In this order FERC mandates that demand response suppliers must be compensated by the organized wholesale energy markets at the local market price for electricity during the hour the demand response is performed. Energy management in a commercial facility can be segregated into energy efficiency and demand response. Energy efficiency focuses on steady state load minimization. Demand response reduces load for event-driven periods during the peak load. Commercial facility demand response refers to voluntary actions by customers that change their consumption of electric power in response to price signals, incentives, or directions from grid operators at times of high wholesale market prices or when electric system reliability is jeopardized. Demand-response-driven changes in electricity use are designed to be short-term and centered on critical hours during the day when demand is high or when the electricity supplier’s reserve margins are low. Demand response events are typically scheduled between 12:00 p.m. and 7:00 p.m. on eight to 15 days during the hottest period of the year. Analysis has determined that automated demand response programs are more efficient and effective than manually controlled demand response programs due to persistence. FERC has stated that their Order 745 ensures organized wholesale energy market competition and removes barriers to the participation of demand response resources. In Order 745, FERC also directed that the demand response compensation costs be allocated among those customers who benefit from the lower prices for energy resulting from the demand response. FERC has allowed the organized wholesale energy markets to establish details for implementation methods for demand response compensation over the next four years following the final Order issue date. This compensation to suppliers of demand response can be significant since demand response is typically performed during those hours when the wholesale market prices are at their highest levels during the year.