Not Quite Everything, Jonathan

LETTERS EXCHANGE

Not Quite Everything, Jonathan

I

n reading your response to my response to your response to my article, I was surprised to discover that we agree on so many issues and also that our debate was not over economic efficiency – I thought it was. Nonetheless, as in the case of Mrs. Lincoln being asked how she enjoyed the play, it deserves to be said that we disagree on the most important issue – the appropriate level of compensation for providers of wholesale economic demand response. As you wish, let’s set aside economic efficiency and just focus on what an ISO should pay for demand response in order to balance system supply and demand. As illustrated in my initial article, the ISO should pay full LMP for a load reduction just as it pays full LMP for a

Jan./Feb. 2012, Vol. 25, Issue 1

comparable increase in generation; however, the ISO should not incur that cost twice – once through the explicit payment to the third-party aggregator of retail customers (ARC) and again through the reduced revenue it receives from the load-serving entity whose retail customer produced the load reduction. Neither you nor Mike Rosenzweig nor Fred Kahn addressed this elephant in the room. Double compensation of demand response at the wholesale level directly conflicts with the principle you advocated in your November 2010 article, i.e., that the ISO should pay the same price for a service regardless of whether it is provided by a supply-side or a demand-side resource. Therefore, it follows that

you cannot rationally oppose the ISO ‘‘reconstituting’’ a loadserving entity’s load, i.e., charging it, for any demand response energy its retail customers sold through an ARC. As my initial article points out, both the California ISO and the Midwest ISO proposed such load reconstitution in their Order 719 compliance filings. If load reconstitution were implemented the retail regulators would be forced to resolve the economic efficiency problem. Unfortunately, FERC Order 745 prohibited load reconstitution and, in the process, precluded retail regulators from offsetting the ‘‘G’’ overpayment through retail tariff modifications. Jonathan, do we both agree that the ISO should only pay once for a megawatt-hour of demand response energy, just as it only pays a generator once for a megawatt-hour of injected energy? If you agree then we have largely resolved our key differences, including the treatment of behindthe-meter generation. So what say you, Jonathan?& Robert Borlick doi:/10.1016/j.tej.2012.01.004

1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved.

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