Posts Tagged ‘smart grid’

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Smart meter cybersecurity and moral panics

April 19, 2012

Lynne Kiesling

In March I wrote about Adam Thierer’s paper on technopanics — “a moral panic centered on societal fears about a particular contemporary technology” — and I argued that we should bear the moral panic phenomenon in mind when evaluating objections to smart grid technologies. In the past two weeks we’ve seen news articles on this topic: according to the FBI, smart meter cybersecurity is loose enough that hackers have been able to hack into smart meters and steal electricity.

Chris King from eMeter has done some digging into this question, and writes at Earth2Tech suggesting that the problem is old-fashioned criminal human behavior, not any technology-specific security failure:

Upon a closer look, this situation is not so much about smart meters as it is about criminal human behavior. Former Washington Post reporter Brian Krebs explained that it was not actually the smart meters themselves which were “hacked.” The meters’ own security measures were not breached.

Instead, criminals accessed the smart meters by stealing meter passwords as well as some devices used to program the meters. This is more like stealing a key and opening a door, rather than breaking the lock on the door.

These criminals were former employees of the utility involved, and of the vendor who provided the smart meters. These people were paid (bribed) by customers to illegally reprogram the meters so that those meters would record less energy consumption than actually occurred. This is not fundamentally different from bribing human meter readers to under report consumption — which happens often in some developing countries.

Which brings us back to Adam’s original point: why are we so willing to accept the technopanic argument? Why are so many people so suspicious of new technology, and so willing to give up both the consequentialist potential benefits and the moral defense of individual liberty and impose controls and limits on technology?

Posted in Economics, Electricity, Technology | Tagged , , | 2 Comments »

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The Internet of things and computational energy efficiency

April 9, 2012

Lynne Kiesling

Today in Technology Review, Jonathan Koomey has an interesting analysis of computational energy efficiency. We’re all familiar with Moore’s Law — Gordon Moore’s prediction that the number of transistors on a chip will double approximately every two years — but I did not realize that Moore’s Law is also borne out in improvements in the electrical efficiency of computation. Not only do we have more and more computational capacity per unit of area, each of those increased computations is performed with less electricity per computation. Koomey’s graphic showing this result over time is striking:

If this trend continues, Koomey claims, “ the power needed to perform a task requiring a fixed number of computations will continue to fall by half every 1.5 years (or a factor of 100 every decade). As a result, even smaller and less power-intensive computing devices will proliferate, paving the way for new mobile computing and communications applications that vastly increase our ability to collect and use data in real time.”

The ability to do more work with less effort is one of the most meaningful consequences of technological change, whether we’re talking about horse harnesses, water wheels, diesel engines, or digital sensors. One of the fascinating aspects of this improvement in computational electrical efficiency is that it opens up the feasibility of lots of distributed low-power sensors that get enough electricity to operate by harvesting “background energy flows”; Koomey’s example is small weather sensors that harvest stray energy from television and radio signals to send weather condition updates every five seconds. Imagine how a distributed network of such sensors could improve severe weather preparation, for example.

In the rest of this very interesting article, Koomey discusses the research and design efforts going into achieving such energy efficiency in data transmission and taking a system-level perspective on the electricity use of an entire network of devices. He also claims, and I think he’s right, that without such energy efficiency the “Internet of things” cannot become a reality.

The “Internet of things” framing of the Internet envisions interconnected networks of devices able to communicate their states, generate more granular information, and/or trigger tasks autonomously, without human intervention. For example, right now the water filter in my refrigerator needs to be replaced, which means I go down to the basement to see if I have one (which I do), and if using it reduces my filter inventory to one, I get online and order three more. It would economize on the most scarce resource in this supply chain — my time — if the filters had RFIDs and the refrigerator had an algorithm that would implement the inventory query and ordering process for me. I still have to install the new filter, but if that installation triggered an automated query and order, I’d come home from work in a few days to find a box of three water filters, with little effort on my part. That’s an example of the potential of the Internet of things; I’m sure you can come up with more examples that you would find valuable in your own work or personal lives, and I know you can see where this IoT framework intersects with consumer-focused smart grid networks.

Of course, details matter, such as getting the interoperability rules and security right so that only refrigerators can query the filter inventory in the house (no infiltrators, including the government), and so that the refrigerator’s connection to order replacements is secure. The same applies to electricity devices in the home and the digital meter, which is why one of the important phases in the process of smart grid development is laws protecting consumer privacy and property rights in data. Innovation in both computational power and computational energy efficiency have created this potential to create more value while economizing on the scarce resources of human time and attention.

UPDATE: And check this out: carbon nanotubes that can dump heat separately from current into a separate device, which should contribute to continued gains in computational energy efficiency.

Posted in Economics, Electricity, Technology | Tagged , , , | Comments Off

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Cost savings and value creation are different

November 28, 2011

Lynne Kiesling

The cost saving-focused mindset has prevailed in regulated industries for over a century, slowing innovation in the process. In electricity, regulation that bases firms’ profits on cost recovery erects market barriers by recognizing only a business model that involves providing a specified product (110v power to the home) transported over a monopoly network. Even in 2011, well into the third decade of the digital revolution, this narrow focus and cost-saving mindset persists, and it fetters smart grid-enabled economic growth by emphasizing cost recovery and ignoring value creation.

In fact, one of the main reasons why smart grid investments face regulatory and political opposition is that focus on cost recovery (among others). I think this Greentech Media article gets the story right: the ways that smart grid investments can lead to cost savings are limited. We’ve discussed this idea here at KP quite a bit — a limitation on the benefits of transactive technologies and dynamic pricing is the fact that for most people, electricity bills are not a large share of their annual expenses, so even saving 15% on the electricity bill may not be a salient enough benefit to induce a lot of people to make technology investments. In other words, smart grid may or may not lead to cost savings for a lot of residential customers.

But is that the right metric by which to evaluate smart grid investments? Of course not. The Greentech Media article linked above starts with a telecom metaphor that I use frequently. In nominal terms, most of us pay much more for our communication services today than we did when all we had was a single land line (and leased Western Electric phone!) back in the 1980s, and even in real terms we probably still pay more than we did then. But look at how much more value we get — mobility, Internet, automation, all of the services that have been created at the edge of the network. We are much richer and better off because of the change in communication technologies and services since the 1980s, even taking into account that we pay more for them. Apply this metaphor to the regulatory calculus today, and the mismatch of its cost recovery focus and the benefits arising from new value creation is apparent. Innovation in telecommunications didn’t occur and thrive and expand because of cost savings and cost recovery, but instead because of new value creation.

Those who argue that the business model for customer-facing smart grid investments has to be grounded only in cost savings are incorrect, and are looking too narrowly at consumer value propositions. This debate came up in the post I wrote in October about the new Nest thermostat, a gorgeous and beautifully designed piece of consumer-focused in-home technology from a group of former Apple engineers, and in other articles about Nest around the same time. Observers from this traditional cost savings mindset dismissed the Nest thermostat because of its $250 price tag, saying that consumers would not save enough money to make the payback period on it make sense, even with dynamic pricing. This criticism overlooks the additional features and capabilities of such a device — motion sensing, serving as a hub to integrate and manage and automate in-home digital devices, learning algorithms, extensibility to be able to bundle with other digital services in the home, and so on. It also overlooks the persistent pattern in the history of new technology adoption, from the Roman baths onward; there will always be consumers with strong “first adopter” preferences, who are willing to pay more to be the first ones to have the novelty, and in the case of digital devices, incur that cost fully aware that prices will fall in the future as the technology matures. They guinea pig new technologies for the rest of us.

Those two aspects — additional features and first adopter preferences — mean that a lot of the value proposition in consumer-facing smart grid technologies is new value creation, not cost savings. This means that the regulatory calculus and the traditional electricity cost-focused mindset misses the real action, the real opportunity, the real potential that the investments could unleash.

One data point supporting my claim is that, only one week after its commercial release, the Nest thermostat was sold out and is now only available on backorder. Such innovation is about value creation more than cost savings, and ignoring and stifling that process holds back the contribution of the electricity industry to economic growth and well-being.

Posted in Economics, Electricity, Technology | Tagged , , , | 2 Comments »

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The smart grid and the regulatory barriers thereto

October 26, 2011

Michael Giberson

Bob Jenks of Oregon’s Citizens’ Utility Board, writing at EnergyPulse, explains “Why Smart Grid Advocates Should Learn About Utility Regulation.”

Reading between the lines a bit, the reason smart grid advocates should learn about utility regulation seems to be so that they will understand that their talent, inventiveness, and desire to make the world a better place will be wasted unless they trim their vision to fit the established way of doing things. Therefore:

Although Smart Grid advocates have brought something new to the industry, progress for the sake of progress must be discouraged. Let us preserve what must be preserved, perfect what can be perfected, and prune practices that ought to be prohibited.

No, I’m sorry that is not right, somehow Jenks’s text got mixed in with Dolores Umbridge’s introductory speech to the assembled students of Hogwarts.

Actually, Jenks argues a long history of regulatory practice has resulted in a body of established ways of doing things – for example, managing utility incentives through manipulating the rate base, doctrines such as “use and useful” intended to protect ratepayers. If smart grid advocates want to engage with customers of a regulated electric utility, Jenks says they’ll need to work within the established system.

In essence, smart grid advocates, the advice is to realize that any regulated industry is part of the broader political industry:

Look, you need to participate in our system. You need to participate at a personal level, you need to participate at a corporate level.

No, once again I’ve mixed it up a bit. That is Google’s John Schmidt talking about his experience dealing with politicians in Washington, DC.

All snarkyness aside, I actually agree with a great deal of what Jenks says. If smart grid advocates want to make headway in a regulated business like exists for electric power for most of the United States, then they better learn the rules of the regulated game. You want to sell into a regulated utility market? Then you better trim your vision to fit the regulators’ ways of doing things. It just turns out that neither regulators nor the regulated industry do innovation very well, at least not the revolutionary kind of innovation like some smart grid advocates have in mind.

And in recognition of that well-established fact, I’d like to invite all smart grid advocates with revolutionary innovations in mind to come on down to Texas and check out the dynamic potential of the state’s competitive retail market.

Posted in Electricity, Energy markets, Technology | Tagged , | 2 Comments »

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Nest’s elegant learning thermostat — but is it transactive?

October 25, 2011

Lynne Kiesling

A team of highly skilled and design-savvy engineers have revealed Nest, an elegant, well-designed thermostat that can learn your preferred settings, analyze your data to spot energy-saving and money-saving opportunities, and look lovely on your wall. Earth2Tech has a review article on Nest, as does Greentech Enterprise. This summary description, from the Earth2Tech article, indicates why this device has strong potential:

The Nest thermostat, on the other hand, is supposed to learn your energy consumption behavior and program itself, and then automatically help you save energy in a convenient way. Once installed, the thermostat takes about a week of hardcore learning to recognize the standard way you heat or cool your home, and then recommends settings that are slightly more efficient than what you already do. It also automatically turns down the thermostat at times that are convenient to you. The device also continues to do lighter learning of your behavior via pattern recognition and your manual interaction with it, throughout the life of the device. …

The Nest thermostat has five sensors — temperature, humidity, light and two activity sensors — and the activity sensors can notify the device to turn down the heating and cooling when no one is in the house.

The Nest thermostat also has a feature called “time to temperature,” which shows the home owner how long it will take to heat or cool the home.

I love the idea of this “time to temperature”, because most people don’t realize how large an effect the thermal mass of the home has on energy use, and how pre-cooling and pre-heating before a high-price period can save both money and energy.

Nest also offers a website with more granular data, remote adjustment capabilities (and I expect that those adjustments can be automated, although the article doesn’t specify), and money-saving energy-saving suggestions.

But even more importantly, Nest comes equipped with a Zigbee chip and wi-fi, so it will be a discoverable device on your home network, and able to communicate with a digital meter and other digital devices in the home. It sounds like it has enough intelligence in it to be extensible over time to be a portal for automating the behavior of smart digital devices in the home … and it can be transactive, and consequently make the home transactive and the homeowner capable of automating the responses of a wide range of smart devices in the home to respond autonomously to price signals. If a grid is not transactive it’s not a smart grid, and Nest looks like it will be a step in that direction. The other necessary condition for a smart grid is retail choice and the customer being able to choose dynamic pricing that Nest can automate. Without retail choice and dynamic pricing, the smart grid is not smart.

A final interesting note about Nest is its path to market: rather than going the mass utility deployment route, Nest is going direct to consumer, hurrah!

However, Nest is one of the only companies that is directly targeting consumers for its thermostat. Nest plans to sell its thermostat at Best Buy, via building specialty channels, and through its website. Fadell tells me the company wants to “connect with the iPhone generation where it shops.”

I’ll be watching this development with great interest.

Posted in Economics, Electricity, Technology | Tagged , , , | 11 Comments »

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Smart appliances and the innovation cycle

August 25, 2011

Lynne Kiesling

Appliance and consumer electronics manufacturers are starting to incorporate digital technology with energy-related applications into their products … but as with most new technologies, the first commercial stage of the innovation cycle takes the form of “because we can” product differentiation rather than use-specific innovation. Take the example that Technology Review highlighted this week: Samsung’s new refrigerator with an Android LCD display panel on the door. This high-end, gorgeous, stainless-steel refrigerator has an Android touch screen, which I think is pretty neat even if it does not read from the scripture of “the Internet of Things” that Christopher Mims wants it to — if I store my recipes in Evernote or in an Epicurious app, I can pull up a recipe on the door as I’m cooking, or make a shopping list as I’m looking in the fridge to see what I need. Mims’ tone is almost condescending when he observes that

A really smart fridge, part of the Internet of Things, would know when you put that lettuce in the crisper, so it could alert you when it was about to become inedible. It would tweet its current temperature so you know when your kid failed to close the door all the way. A really smart fridge probably doesn’t even have a display — far better to control it from any other internet-connected device.

The cynical view of Samsung’s move to embed a tiny tablet in its fridge is that these devices have become so cheap that sticking one in a fridge hardly makes any difference to their margins. It’s just one of those features — like a pop-up spoiler on the back of a luxury sports car — that makes a buyer feel like they got their splurge’s worth. If that’s the case, we can all look forward to Android-powered microwave ovens and clothes washers.

No. First of all, while I agree that automated monitoring features like produce spoilage detection and door ajar detection are desirable and user-friendly, Mims’ hyperbole about “Oh noes! We’re doomed to useless technology kitchen candy because of this!” shows a strong misunderstanding of the economics of consumer product innovation life cycles. The “version 1.0 mass-market user friendly right out of the gates model” is an outlier, a great exception to the typical evolution of technology; in fact, I’m having trouble thinking of a consumer technology product other than the iPod that comes close to that description. The “because we can” product differentiation puts the technology in the hands of early adopters, who are eager to kick the tires and are willing to spend their income to do so. These customers guinea-pig the technology for the rest of us, and provide companies like Samsung with feedback, which I’m sure will include comments like “it would be great if this technology enabled me to detect produce spoilage” and “this screen is pretty useless if all I can do is get to the Internet and not monitor my food”. Those experiences get incorporated into the evolution of the technology. Starting with the “because we can” technology is not necessarily going to lead to missed opportunities, as Mims argues, as long as companies like Samsung combine their engineering and business knowledge of what’s possible with the feedback they receive throughout the new technology adoption process.

Second, I think his definition of a “really smart fridge” is too limited. A really smart fridge would be transactive. A really smart fridge would enable its owner to program in price triggers to change settings on the chiller during expensive hours, saving the owner (an admittedly fairly small amount of) money and reducing energy use (good if the owner cares about conservation) and reducing peak demand on the distribution infrastructure (good for the wires company) — all without changing the quality of the refrigeration that the owner experiences, thanks to the beauty that is thermal mass. A transactive fridge would enable its owner to choose to cycle the chiller down if there isn’t much green power available, up to the point where the temperature change impairs the refrigeration, if the owner has a preference for green power. A transactive fridge is empowering for consumers.

A better article on the same topic comes from Greentech Media from earlier this summer (and has been sitting open in my browser to be blogged for too long!). In it Katherine Tweed argues that the current, first generation of smart appliances are oversold relative to their features. Without saying it explicitly, she makes the point that these first-generation smart appliances are expensive and likely to appear to early adopters — buyers more at the Viking end of the product line than the bottom of the Whirlpool line. She also, correctly, points out that if the value proposition to the consumer is saving money by reducing energy savings, the smart appliance features do not contribute much at the margin beyond the EnergyStar appliance standard; so if you are buying to save money by saving energy, you aren’t going to get much bang for the buck at the margin by choosing a smart fridge over an EnergyStar fridge. But as I remarked earlier, that’s not the only value proposition, because consumers care about other features.

It’s going to take some time to get the technology integration across the value chain to create all of these features, from spoilage detection to transactive automated response to dynamic pricing to preferentially choosing green power to sending the beer order to the store when my supply is low. It’s also going to take some choice in terms of electricity pricing for residential customers, and (surprise surprise) monopoly utilities and regulators are dragging their feet on that front. But don’t dismiss smart appliances today simply because V1.0 isn’t perfect. V1.0 never is.

ETA: I also recommend reading the comment thread on the Greentech Media article; it has a good back-and-forth about dynamic pricing.

Posted in Economics, Electricity, Technology | Tagged , , , | 2 Comments »

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Power consumption reaches new peaks in Texas, ERCOT narrowly avoids rolling blackouts

August 13, 2011

Michael Giberson

Much in the news in Texas these past few weeks have been new peak power records and several grid emergency conditions which saw the ERCOT power system narrowly avoid rolling blackout a time or two. Tom Fowler of the Houston Chronicle‘s Fuel Fix blog has been tracking the story closely, see selected links below.

Rebecca Smith provided a broad view of the events in the Wall Street Journal yesterday. She reports that power consumption has reached levels this summer than ERCOT had forecast would not be reached until 2014. Eight times this summer power consumption has exceeded the previous record, set last year, 65,766 MW. The new record, set August 3, is 68,294 MW.

Smith’s article reports some concern about the future ability of ERCOT to meet rising demand, given the lack of regulatory tools to push companies to build more power plants. Fortunately, powerful economic incentives are at work:

While most power in Texas sells for negotiated prices spelled out in long-term contracts between generators and power retailers, the grid operator also procures electricity to keep the system in balance. The price paid in this auction readjusts every 15 minutes. When supplies are thin, prices can rise rapidly.

As a result of record electricity consumption, prices repeatedly hit $3,000 a megawatt hour last week, which is three times the maximum amount that generators can charge in deregulated electricity markets in the eastern U.S. (Electricity markets in Texas have rules created by state authorities, whereas other deregulated U.S. power markets are guided by the Federal Energy Regulatory Commission.)

Note that the presence of long-term contracts at prices significantly lower than $3,000 per MW h doesn’t diminish incentive effects, since at the margin conservation or additional consumption faces that price. Also, the expectations now being formed concerning next summer’s average prices will factor in recent experiences and shift the prices higher for future power contracts.

Those powerful economic forces at work will be signaling to both generators and retailers. I am a little surprised that Retail Electric Providers in ERCOT are not yet offering smart-grid enabled products involving price-sensitive (or emergency grid condition-based) demand response, but I’ll be much more surprised if such products are not available before next summer.

MORE: FuelFix.com ERCOT story highlights from the past two weeks:

Posted in Electricity, Energy markets, Regulation | Tagged , , , | 1 Comment »

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Texas gaining smart grid buzz

May 25, 2011

Michael Giberson

Texas is becoming a recognized leader in smart grid development, and just wait, it is going to get better. One external bit of circumstantial evidence for this claim comes from a meeting last week at the White House hosted by Aneesh Chopra, Assistant to the President and Associate Director for Technology within the White House’s Office of Science & Technology Policy. When Chopra wanted to discuss the smart grid, he called on Texans: Barry Smitherman of the Public Utility Commission of Texas, Brewster McCracken of the Pecan Street Project in Austin, and representatives from Dallas-based Oncor, Houston-based CenterPoint Energy and Houston-based Reliant Energy. In addition, folks from Itron (Spokane, WA), Landis+Gyr (UK), and the Zigbee Alliance (San Ramon, CA) will be participating.

There are two sides to the smart grid world: the wires company-style improvements and the retail customer revolution. Things are happening in Texas on both sides. The wires company developments will come sooner, because it provides a foundation for the customer-side developments and because it is easier for incumbent utilities to understand and deploy. The retail customer revolution belongs to today’s innovators and explorers, who are likely not today’s well-established incumbents. The revolution will be slower, because in general consumers are reasonably happy with their power suppliers and don’t do much active shopping around. Eventually, however, it will be revolutionary.

Lots of places have rolled out smart meters, and utility smart grid investments are happening many places as well. But for the most part a smart meter tied to a customer on a cost-of-service regulated flat-rate tariff is like owning a smart phone connected to the Ma Bell monopoly of last century. There may be a certain cachet for gadget geeks in having such a thing, but otherwise it mostly just sits there.

Texas has, in the ERCOT-linked parts of the state, all of the pieces in place for a customer-driven revolution: the Texas competitive retail market, smart metering, a competitive wholesale market, and use of true interval meter data rather than load profiles to allocate wholesale costs to retailers. Consumers will better understand their use of electric power, that understanding will inform their energy choices, a competitive retail market place will allow creative retailers to work with customers to enhance their energy choices, the retailers will begin to engage the wholesale market differently, and the competitive wholesale market will adapt to the changing demands of power customers.

There is a lot of exciting engineering work happening, in Texas and elsewhere, but when it comes to a dynamic retail market that can make the most of that engineering work, Texas is the only place in the United States with a good foundation.

Posted in Economics, Electricity, Energy markets | Tagged , , | 1 Comment »

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Will Android@Home help make smart grid more consumer-centric?

May 12, 2011

Lynne Kiesling

I think the past 18 months have been disappointing for consumer-centric smart grid proponents and companies. In January 2010 the incisive Katie Fehrenbacher pronounced 2010 the year in which the consumer would be the king of home energy management, and this pronouncement has not come to fruition. I’ve been formulating some ideas about why that’s the case, and in large part I think it’s a combination of the utility-centric rollout of consumer-facing technology, the perverse regulatory incentives facing utilities and regulators, and how those factors combine to perpetuate the consumer’s indifference to home energy management technologies.

However, the new ideas and chipping away at that indifference are happening, slowly. Over the past several weeks I’ve seen ads for ADT Pulse, the new remote service from ADT Security (complete with mobile phone app!) that enables energy efficiency and lighting/thermostat controls under its “lifestyle” and “home automation” features. These features leverage their existing in-home communication technology, and are a form of the kind of bundling and product differentiation that characterizes innovative consumer-facing industries. ADT Pulse is not yet a transactive technology, but I hope there will be a chicken-and-egg development of dynamic pricing as these bundled services proliferate — knowing that they have the automation technology available to them, more and more consumers will be eager to have retail choice in their electricity contract, including dynamic pricing.

On Tuesday this space got more interesting as Google announced its entry into the home management technology space with Android@Home:

At its I/O developer conference on Tuesday, Google showed a sneak preview of its Android@Home project, which will extend the Android platform into household objects. That means some day in the future, you could control home appliances — your dishwasher, the heating system, the lights in your house — using your Android device as a remote control.

“Think of your phone as the nucleus that this all started with,” said Google engineering director Joe Britt in an interview. “We’re opening the platform up to everyone to do whatever they can imagine.”

This makes my geeky heart go pitter-pat; think of the potential here! Android is an open-source development platform, and as such it has interoperability requirements baked into its development culture already. This culture of interoperability is growing, slowly, in the electricity industry, as interoperability standards development proceeds. It can leverage pre-existing wireless sensors and networks in smart buildings, again thanks to interoperability.

The essential next step is to create differentiated products and bundles with dynamic pricing options so consumers can actually simultaneously save money, reduce energy use, and be empowered to control their own choices in their own homes. That will not happen through conventional regulatory processes.

Posted in Economics, Electricity, Technology | Tagged , , | 4 Comments »

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Update on “Will faking a consumer cartel help make power markets more efficient?”

March 16, 2011

Michael Giberson

Last September I asked, “Will faking a consumer cartel help make power markets more efficient?“, ”Does FERC really want to go down this path?” and “Do they really think that faking a consumer cartel will help make wholesale power markets work more efficiently?”

The answer to the first question is “no, it won’t make markets more efficient.” Yesterday FERC issued the final rule requiring what it calls a “market-based demand response compensation rule,” so now we have answers to the second and third questions. The answers are:  ”yes, FERC wants to go down…” and “yes, apparently they really do think faking it is as good as the real thing.”

From the press release:

“Today’s final rule is about bringing benefits to consumers,” FERC Chairman Jon Wellinghoff said. “The approach to compensating demand response resources as we require here will help to provide more resource options for efficient and reliable system operation, encourage new entry and innovation in energy markets, and spur the deployment of new technologies. All of this contributes to just and reasonable rates.”

Today’s final rule recognizes that in the Energy Policy Act of 2005, Congress established a national policy to eliminate unnecessary barriers to demand response participation in organized wholesale energy markets. In approving the new rule today, FERC continues to recognize that markets function most effectively when both supply and demand resources have appropriate opportunities to participate.

The full Order 745 (PDF) includes the dissenting statement of Commissioner Moeller. He begins:

While the merits of various methods for compensating demand response were discussed at length in the course of this rulemaking, nowhere did I review any comment or hear any testimony that questioned the benefit of having demand response resources participate in the organized wholesale energy markets. On this point, there is no debate. The fact is that demand response plays a very important role in these markets by providing significant economic, reliability, and other market-related benefits.

However, in a misguided attempt to encourage greater demand response participation in the organized energy markets, today’s Rule imposes a standardized and preferential compensation scheme that conflicts both with the Commission’s efforts to promote competitive markets and with its statutory mandate to ensure supplies of electric energy at just, reasonable, and not unduly discriminatory or preferential rates. For these reasons, I cannot support this Rule.

He proceeds to take apart the logic of the majority’s Order for 10 pages.

NOTE: The docket number is RM10-17-000.

(HT to a regular reader. Thanks for bringing bad news to our immediate attention.)

Posted in Economics, Electricity, Energy markets, Regulation | Tagged , | Comments Off

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