March 18, 2011, 4:23 PM — When the words "FERC Order" are uttered, most people's eyes either glaze over or worried frowns appear as they wonder if they need to understand the conversation. Let's try to figure out what this order means for the clean tech world in words we can all understand.
First, here's the summary of Order 745:
SUMMARY: In this Final Rule, the Federal Energy Regulatory Commission (Commission) amends its regulations under the Federal Power Act to ensure that when a demand response resource participating in an organized wholesale energy market administered by a Regional Transmission Organization (RTO) or Independent System Operator (ISO) has the capability to balance supply and demand as an alternative to a generation resource and when dispatch of that demand response resource is cost-effective as determined by the net benefits test described in this rule, that demand response resource must be compensated for the service it provides to the energy market at the market price for energy, referred to as the locational marginal price (LMP). This approach for compensating demand response resources helps to ensure the competitiveness of organized wholesale energy markets and remove barriers to the participation of demand response resources, thus ensuring just and reasonable wholesale rates.
So, what does this all mean and how will it impact clean technology investment and deployment? With the Energy Policy Act of 2005, Congress recognized the importance of demand response; this Order 745 is the result of a proactive effort by FERC Chairman Wellinghoff to ensure that demand response--and everything it enables--is treated as an energy resource. Over 150 commenters--- Independent System Operators (ISO's), Regional Transmission Operators (RTO's), environmental organizations, citizen groups, regulators, utilities, DR providers--filed with opinions and arguments on all sides of the issue. The FERC decided to take a stand on its jurisdiction and assert that it does in fact have the authority to set the compensation level for demand response in organized wholesale energy markets, and that the Commission can and should regulate the market rules under which an ISO or RTO accepts a demand response bid into a wholesale market.
FERC acknowledges in this order that "a market functions effectively only when both supply and demand can meaningfully participate." Smart grid aficionados have been saying all along that a smarter grid allows the supply and demand sides to interact seamlessly and in perfect balance to the benefit of everyone on the grid. This order now puts a value on that delivery.