Industry Update: What You Need to Know About FERC Economic Rulemaking RM10-17
The new RM10-17 rule would require organized markets (RTOs and ISOs) to compensate services derived from Demand Response resources in a manner comparable to services derived from traditional generation sources. This could mean significantly greater earnings opportunities for FlexConnect® customers. These answers to the FAQs shed additional light on the FERC proposal.
Q: What is a Rulemaking?
A: The Federal Energy Regulatory Commission (FERC) has jurisdiction over companies engaged in energy transportation, including electricity over transmission lines and gas over interstate pipelines. Most of its work involves regulation of individual companies. On occasion, the FERC may also act to establish broader rules that cover an entire industry. This process begins with a Notice of Proposed Rulemaking (NOPR), often called a “Rulemaking”.
Q: How does a “Rule” get established?
A: The FERC proposes a rule and seeks comment from industry stakeholders. Stakeholders submit comments and suggestions for modification of the proposed new rule. The Commission considers the comments and then issues a final rule.
Q: What specifically is the proposed rule RM10-17? How does it affect you?
A: The proposed rule would require organized markets (RTOs and ISOs) to compensate services derived from Demand Response resources in a manner comparable to services derived from traditional generation sources. In every organized market, increases in generation output are compensated at the full spot price, usually called the Locational Marginal Price (LMP). However, even in PJM, widely considered the most advanced RTO, compensation for EnergyConnect’s FlexConnect customers that decrease their use is LMP minus the customer retail energy cost. The proposed rule calls for compensating FlexConnect customers at full LMP for reductions.
Q: What happened to the proposed incentives in PJM?
A: The FERC decided that the PJM proposal was revolutionary enough that it should be considered for all RTOs.
Q: Why is this proposed rule so important?
A: The proposed rule would establish full LMP compensation in all RTOs – not just PJM. This will lead to greater uniformity in treatment across the country. It will allow customers with facilities in multiple regions to have participation by each site on generally equal terms, thus simplifying demand response participation. It will allow you to benefit from the use of FlexConnect at all your sites in RTOs, leading to increased ability to manage costs and efficiency.
Q: What will full LMP compensation mean to a FlexConnect customer?
A: Full LMP compensation reduces the LMP at which a FlexConnect customer benefits from curtailing demand. This in turn will have two big impacts.
First, it will increase the number of hours when it makes sense to curtail load because there are many more “lower-cost” hours. For example, in an “LMP minus retail rate” scenario, a customer with a retail rate of 7 cents/kWh might have been able to curtail when prices were less than 20 cents/kWh. In 2008, there were just 74 hours when prices were higher than 20 cents/kWh in PJM. With full LMP compensation, the same customer should be able to curtail when prices are above 13 cents/kWh. In 2008, there were 625 hours where LMP was higher than 13 cents/kWh in PJM – more than eight times more hours of opportunity!
Second, full LMP compensation will increase the compensation for a curtailment at any particular price. If the customer in the previous example curtailed 200 kWh only when prices were above 20 cents/kWh, total revenue from FlexConnect participation in 2008 would have increased by more than $1000 with full LMP compensation.
Q: When will this new opportunity be available?
A: It is difficult to say for sure when all the pieces will be in place. FERC deadline for comments was on May 13, 2010. The Commission typically takes three to five months to reach a final rule after receiving comments.
Upon issuing a final rule, the RTOs that will implement it must ensure their tariffs conform to the rule and submit the revised tariffs to FERC. Some RTOs may require substantial systems development to implement the rules and may request additional time for implementation. PJM, NYISO, and ISONE should be ready to go in the summer of 2011. Others may not be ready until the following year.
Q: What’s the bottom line impact of this ruling?
A: The new RM10-17 rule will mean significantly greater earnings opportunities for FlexConnect customers. Contact your FlexConnect representative with questions or comments. EnergyConnect will assist you in any way we can to satisfactorily address your concerns moving forward and keeping you informed about further developments.