New England Set to Implement Day-Ahead Demand-Response Market Beginning June 1

The New England Power Pool and the ISO New England finally won FERC approval in April to expand their demand-response bidding beyond real-time to the day-ahead market ¾ the Day-Ahead Load-Response Program or DALRP.  This approval joins other recent regulatory recognitions that conservation can often prove the least-cost answer to perceived supply shortages.

When the new program goes into effect June 1, a firm-demand New England customer can elect to become a demand resource by registering in one of ISO-NE's load-response programs and then be able to offer demand reduction in the day-ahead market to reduce its demand for payment.  If not accepted day-ahead, then the customer can still offer its demand reduction in the existing real-time response program.

DALRP offers must be in increments of 100 kilowatts, for a minimum interruption between one and four hours, at prices between a minimum of $50 and a maximum $1,000 of per megawatt hour.  DALRP offers that clear the market will be paid the day-ahead locational marginal price multiplied by the offered amount of demand reduction and the number of hours that are cleared.  Differences between DALRP offers and real-time performance will be settled at real-time locational marginal prices.

Who pays the cost of the DALRP program was controversial.  Once the program goes into effect on June 1, the cost of all load response ¾ both the new day-ahead and the existing real-time program ¾ ceases to be the responsibility of only real-time load response customers and becomes the responsibility of all network demand based on the theory that the downward pressure on prices of reduced day-ahead demand will benefit equally all customers.  Certain municipal network customers balked at this because they are fully scheduled day-ahead and are locked into day-ahead prices.  Under the first phase of DALRP implementation, however, the DALRP offers will only reduce clearing energy prices in real-time, sequentially after the supply offers have been processed.  Despite this complaint, FERC authorized the program because, it reasoned, downward-price pressure in the real-time dispatch, over time, will push down day-ahead prices as well.

In a later phase of implementation, the DALRP program will be integrated into the day-ahead dispatch and will no longer be a sequential add-on to the processing of supply-side offers.  Once integrated and no longer sequential, DALRP should cease to be controversial. [New England Power Pool, 111 FERC ¶ 61,064 (2005)] [NEW MATTER]