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NYISO the Next Battlefield for Behind-the-Meter Generation Demand Response

by William Friedman

The Federal Energy Regulatory Commission’s (FERC) approval of the New York Independent System Operator’s (NYISO) demand response compensation program left out a mechanism for compensating demand response from behind-the-meter generation, which prompted the latest outcry from demand response providers.   The demand response providers filed a complaint with FERC claiming discrimination between methods of demand response and seeking to compel the NYISO to compensate behind-the-meter generation demand response.  On the other side of the controversy are power producers who fear that compensating behind-the-meter generation would take money from power generation on the other side of the meter.

Demand response is a reduction in electricity consumption by customers from their expected consumption in response to an increase in the price of electricity or incentive payments designed to induce lower consumption.  In Order No. 745, FERC established a compensation approach for demand response resources by requiring that each regional transmission organization (RTO) and independent system operator (ISO) pay a demand response resource the market price for energy when the resource has the capability to balance supply and demand and when doing so would provide a net economic benefit to consumers.

The NYISO’s Order No. 745 compliance filing was approved by FERC without providing for compensation to behind-the-meter generation.  In other words, consumers with behind-the-meter generation, usually large industrial facilities, will not be compensated for relying on their own generators as an alternative to purchasing power from the market, while other demand response resources that do not generate power will be compensated solely for decreasing consumption.  In response, a number of facilities and aggregators that provide demand response recently complained to FERC seeking an order compelling the NYISO to compensate behind-the-meter generation as part of its demand response program.  The complainants point to neighboring RTOs/ISOs, including ISO-NE, PJM and MISO, which do compensate behind-the-meter generation and argue that excluding behind-the-meter generation violates FERC policy and constitutes undue discrimination.

The demand response providers are opposed by a consortium of independent power producers who argue that including behind-the-meter generation is economically inefficient and creates an improper incentive to move generation behind the meter where it is outside the reach of the RTO/ISO.  The NYISO also filed an answer to the complaint, arguing that forcing the ISO to compensate behind-the-meter generation as a demand response resource raises grid reliability and monitoring concerns.  The NYISO states in its pleading that it is already exploring revisions to its demand response program and the ISO’s internal stakeholder process should be allowed to run its course.  Answers to the complaint were filed last week.  A FERC ruling should be handed down in two to three months.

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FERC Proposes to Adopt NAESB Standards for Demand Response and Energy Efficiency

by Elizabeth P. Philpott

The Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) on April 19 to amend its regulations “to incorporate by reference the business practice standards adopted by the Wholesale Electric Quadrant of the North American Energy Standards Board (NAESB) that pertain to the measurement and verification of demand response and energy efficiency resources participating in organized wholesale electricity markets.”  The NOPR is timely, coming on the heels of several contentious disputes, including FERC enforcement actions, questioning how to measure the performance of vendors of demand response and efficiency resources.  To be considered, comments on the NOPR must be submitted to FERC 60 days after publication of the NOPR in the Federal Register.

Adoption of the NAESB standards, in FERC’s view, could improve demand response and energy efficiency resource performance, measuring methods and procedures.  FERC also expressed its hope that the NAESB standards could assist Independent System Operators (ISO) and Regional Transmission Organizations (RTO) with accounting for and crediting demand response and energy efficiency resources.

NAESB describes the proposed standards as a “framework” to develop methodologies.  The proposed demand response standards include the following changes:

  • Adding a meter data reporting deadline;
  • Specifying advance notification guidelines;
  • Establishing a telemetry interval; and
  • Tightening requirement for meter accuracy.

Through this NOPR, FERC seeks comment about whether these methodologies need to be more detailed to be useful.  FERC also seeks comment on whether ISOs and RTOs need further specific development of measurement and verification standards and if so, whether NAESB or FERC should lead this process.

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