ACEEE Comments on the Federal Energy Regulatory Commission’s Proposed Rule on Standard Market Design

ACEEE is pleased to submit these comments on the Commission's proposed Standard Market Design rule. ACEEE is a nationally-recognized energy policy research and advocacy organization with more than twenty years experience in the energy efficiency field. In the electricity sector, we have been active in developing policy and program recommendations for Congress, federal agencies, state legislatures, state utility commissions, utilities, and public benefits administrators.

Following a summary section, our comments are presented in two primary categories: general comments and comments specific to sections of the NOPR.

Summary

While the proposed rule reflects the Commission's appreciation of the need for increased demand-side resource participation in electricity markets, it falls short on key specifics that are essential to ensure that the full scope of demand-side resources is included in the emerging electricity markets the Commission envisions. Energy efficiency represents at least half of the demand response potential in the U.S. electricity system, but the proposed rule does not go far enough in enabling energy efficiency to participate in key market processes.

Energy Efficiency Improves Reliability.

Efficiency and other demand-side resources reduce strain on the entire electricity system, at a cost that is very competitive with generation and transmission resources. Efficiency has delivered about half of the 30,000 MW of peak capacity avoided by demand-side programs to date, and ACEEE research projects that targeted efficiency programs can achieve another 64,000 MW in peak reductions over the next decade, avoiding about half of forecast peak load growth.

Efficiency Is a Viable Form of Demand Response.

Most of what is construed as Demand Response in the proposed rule is really load management, which typically consists of very short term shifts or curtailments of load during peak conditions. Load management may not save any energy on net, whereas energy efficiency can achieve the same peak reductions, but also delivers other benefits load management does not provide, such as air pollution emission reductions and ongoing customer bill reductions.

Energy Efficiency Mitigates Market Power and Moderates Prices.

Experience in several markets has shown that efficiency programs have measurable effects on reducing the effects of generator market power, and on reducing wholesale market prices, to the benefit of all customers on the system. Data from New England show that the value of efficiency programs to the wholesale market ranged as high as $114 per Megawatt-hour. Since efficiency programs have been widely documented to produce savings at a cost of less than three cents per kilowatt-hour, these programs are very cost effective.

Energy Efficiency Provides Environmental Benefits.

Unlike most load management programs, which simply displace energy use and accompanying pollutant emissions from powerplants, energy efficiency provides ongoing pollution avoidance benefits to the entire electricity system. This fact must be recognized in the planning and management processes the Commission designs for power markets.

Energy Efficiency Reduces Customer Bills.

In addition to moderating peak wholesale prices, benefiting the entire system, efficiency offers individual customers both lower bills and a hedge against price volatility. Since it is likely that prices in unregulated power markets will always be subject to volatility, it is important to give customers the risk-management value that efficiency provides.

Energy Efficiency Has Been an Important Element of Electricity System Planning.

Over the last twenty years states have used efficiency as an important resource-planning tool to moderate demand forecasts and to acquire demand-side resources as a lower-cost alternative to conventional generation, transmission, and distribution investments. Efficiency programs helped cut electric demand growth rates in half during the 1990s, while economic growth soared. Efficiency spending rose as high at $1.6 billion in the early 1990s, but has been cut almost in half by the effects of restructuring.

Energy Efficiency Must Be Re-Integrated Into System Planning.

State utility commissions, whose resource planning processes drove the demand-side investments of the 1980s and 1990s, have now been stripped of most of their resource planning purview, and are mainly limited to distribution utility regulation. The Commission's proposed rule recognizes the need for a new resource planning framework to fill in the gaps left by restructuring. However, the Commission will have failed its public service obligation if it does not adequately engage energy efficiency as a meaningful part of electricity market planning and operations. Efficiency represents at least half the demand-response potential, produces superior benefits in terms of reliability, pollution prevention, and customer savings, and thus must be part of the new regionalized framework for electricity system management.