The utility industry’s attention has been caught by the clamor and shine of smart grid technology, particularly as to how it relates to dispatching distributed renewable energy sources, such as solar and wind. Smart grid enablement of demand management at the residential level – controlling thermostats, water heaters etc. – also appeals to consumer imagination, although a little more difficult to visualize.

But large blocks of “negawatts,” (aggregated demand reduction from all customer classes that’s sold at the same price to transmission operators as equivalent generation) well that’s a whole other fuzzy concept that’s been bandied about for decades, even before ‘smart grid’ was born. Now, FERC Order 745 (See summary below.) sharpens the focus, at least to the industry. Expect continued grumbling by generation entities that stand to lose plenty of revenue. On the other hand, we’re already seeing high fives by demand response aggregators and consumer groups.

A decade from now, FERC Order 745 might be seen as a giant leap, launching the industry into a new paradigm. It’s too soon to tell. In any case, the public will probably not be all that aware of the friction and smoke, even though the outcome could impact future energy supply as much as solar and wind.

The Summer of 745

The Federal Energy Regulatory 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. (Order No. 745)