Study calls for more push on electricity demand-response programs

Washington (Platts)--18Oct2005

The electricity industry and state and federal regulators need to alter
their thinking and make it easier for retail customers to participate in
demand-response programs, according to a report released Tuesday. 
     The report from the Distributed Energy Financial Group and the Center for
the Advancement of Energy Markets said utilities and independent system
operators should embrace demand response because of the benefits it provides,
such as reducing the need for generation and easing transmission constraints.
Too often efforts to include more demand-response activities are hindered by
regulatory hurdles or barriers to entry that make it difficult for customers
to respond to price signals, the report said. 
     Demand response allows customers to respond to wholesale market prices by
shifting use from peak periods or reducing their usage. But retail and
wholesale markets are not well integrated and the fixed, average electricity
rates that most customers pay bear little or no relation to the cost of
providing power in a given hour, the report said. The result is inefficient
consumption and inappropriate investments in generation and transmission. 
     One of the suggestions to cure this is to reduce the link between
electricity sales volume and utility revenues. Utilities may not embrace load
curtailment, efficiency programs or distributed generation because they affect
utility revenues under the traditional regulatory structure, the report said. 
     At the ISO level, existing demand-response programs "should be modified
to make it easier for retail customers to participate, either directly or
through a third-party service provider." The programs that were started years
ago reflect restrictions and inconsistency among ISOs, but "with experience
and increased confidence, each ISO should loosen the restrictions and increase
the participation in all DR programs. Existing DR programs ought to be
continuously improved by adopting best practices from other regions" and a
consistent way to value DR activities should be developed, the report said.
     The report is based on a survey that identified two groups of supporters
that advocate for more demand response. One group prefers highly structured,
well-planned and centrally controlled activities while the other prefers a
free-market approach, allowing willing buyers and sellers to make arrangements
in the marketplace without significant regulation. 
     "Demand response is at a midpoint in its development," DEFG and CAEM
said, acknowledging that DR programs have grown in a relatively short period
of time. But "unless new sources of value from DR programs are identified, or
current incentives increased or extended, there is a danger that DR programs
may become an empty shell, with extensive enabling frameworks in place, but
with insufficient incentives for customers and service providers."
     DEFG is a consulting firm specializing in financial services for
distributed generation and related technologies, and CAEM is a think tank that
supports enhanced competition in the utility industry.

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