Update on “Will Faking a Consumer Cartel Help Make Power Markets More Efficient?”

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.)