The Order will extend application of load-reducing technologies and marketing to a new class of services.
Dr. Charles Cicchetti is co-founder of Pacific Economics Group and formerly was the Miller Chair in Government, Business and the Economy at the University of Southern California. Previously, he served with Arthur Andersen Economic Consulting (managing director), Putnam, Hayes & Bartlett (co-chairman), National Economic Research Associates (NERA, as senior vice president), and the Wisconsin Public Service Commission (as chairman).
The Supreme Court of the United States recently affirmed the Federal Energy Regulatory Commission's Order No. 745, on pricing for demand response (DR). At the core of the debate was the Commission's decision to require wholesale markets to pay successful demand response bids the same Locational Marginal Price (LMP) paid to electricity generators. Professors William Hogan and the late Alfred Kahn, two giants among economists, squared off.
"The rule will allow wholesale markets to shape load curves to reduce the prices." – Charles Cicchetti
On one hand, I understand the logic behind my friend Bill Hogan's arguments that the value of demand response to electricity buyers should be less than LMP, because the demand response product in this case is different than electricity purchased in the wholesale market, in that the latter can be resold to retail customers.
(Editor - Dr. Hogan outlined his views in last month's issue: see, "Demand Response: Getting the Prices Right," Public Utilities Fortnightly, March 2016.)