The US Supreme Court ruled yesterday in FERC v. Electric Power Suppliers Association that the feds have the right to set the rules and incentives for electric power consumers to save energy during peak periods through an option known as demand response (DM).
FERC maintains that the strategy is simple: “Markets function most effectively when both supply and demand resources have appropriate opportunities to participate.” Demand response involves incentivizing customers to reduce their load slightly in exchange for money.
For example, for $10 -$20 a month a homeowner could offer to allow the power company access and cycle the water heater on and off during peak summer days. The money spent around town keeps the A/C cooling and the lights on without building another back-up peak-load generating plant.
Electric power suppliers had long supported a state-by-state regulation of demand response (DR) – this process of meeting peak demand by offering consumers opportunities to participate in controlled minor reductions – because power companies profit by selling more electricity, especially at peak prices.
Supreme Court Justice Elena Kagan reflects on the court’s opinion today; she said that demand response (DR) “arose because wholesale market operators can sometimes — say, on a muggy August day — offer electricity both more cheaply and more reliably by paying users to dial down their consumption than by paying power plants to ramp up their production.”
Demand response integrates customer input into rates and allows choice in such programs as Time-Of-Use, critical peak pricing, variable peak pricing and critical peak rebates. DR also includes direct load control programs that enable power companies to cycle air conditioners and electric water heaters during peak demand periods in exchange for financial incentives and lower electric bills.
Recent experiences from implementing DR show how effectively it builds community by including rate-payers with their choices for incentives. During the Mid-Atlantic’s Polar Vortex of 2014, fossil-fired generation was unable to keep up with demand. It was DR that kept the power on – the millions of cycling water heaters, slightly cooling. No brown-outs. No black-outs. Cleaner environment.
The electric power industry benefits from the modernized grid opportunities too. For one thing, they can bank on the reliability of DR enough to close the older generation of fossil – mostly coal – burning plants that are only used for emergency peak generation.
Reliability no longer resides in a pile of coal, but in the community’s grid-ties and variable demand opportunities that can be implemented with the flicking of a switch and pre-programmed to prevent any unnecessary glitch in service or senseless investment in slow-to-respond combustion-based generation.
The electric industry also gains a certainty in the market stability and resilience with growing options to balance energy supply and demand. By integrating smart grid controls and distributed generation from solar and wind, from geothermal and combined-Heat-and-Power sources, the electric industry avoids overbuilding of excess infra-structure to handle peak load spikes.