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EPSA Urges True Level Playing Field for PJM Demand Response Payments
Procedures for compensating demand response providers that do not place demand response providers and generators on a level playing field will produce inefficient outcomes.
WASHINGTON, D.C. - The Electric Power Supply Association (EPSA) has filed a formal answer with the Federal Energy Regulatory Commission (FERC) opposing as unjust and unreasonable a filing by a group calling itself the Demand Response Supporters (DR Supporters), who ask the FERC to require the PJM Interconnection to effectively pay them twice for not consuming electricity at certain times. This would occur by both paying them the full energy price as incentive compensation in addition to the savings from not consuming energy during peak periods. EPSA's answer is accompanied by a white paper entitled "Providing Incentives for Efficient Demand Response" prepared by noted independent electricity expert Professor William W. Hogan of Harvard University's Kennedy School of Government.
The EPSA answer and Hogan Paper provide economic support for the argument that providing incentive compensation to demand response resources as sought by the "DR Supporters" does not result in comparable treatment among demand and supply resources. EPSA argues that the DR Supporters proposal is unjust and unreasonable; thus, FERC should reject it as excess compensation that will harm other consumers and the PJM market. The Hogan Paper notes that, "[p]rocedures for compensating demand response providers that do not place demand response providers and generators on a level playing field will produce inefficient outcomes."
Commenting on the filing, EPSA President and CEO John E. Shelk said, "Demand response is an important and positive element of organized wholesale electricity markets. However, the details matter. In this case, the DR Supporters would have FERC ignore the fundamental economic principle that subsidizing one set of participants in a competitive market creates inefficiencies that harm all participants, including consumers, thus undermining the claim that the subsidy is just and reasonable."
In refuting the DR Supporters proposal, the EPSA answer asserts that "rather than subsidize, the better approach would be to modify market procedures to reflect the value of electricity during peak periods to elicit competitive economic offers from all resources, whether generation or demand side." Acknowledging the benefits sought to be promoted with demand response, the Hogan Paper notes that "[f]acilitating the development of additional demand response resources could provide many benefits, but it is important to consider the costs and the benefits in the context of the existing market structure in order to determine appropriate policy design."
EPSA's answer and the Hogan Paper may be downloaded at www.epsa.org.
EPSA Response and White Paper
CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.