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.