Things are looking up for demand response. Less than two weeks after the Federal Energy Regulatory Commission refused to make any rash judgments regarding a double counting issue pertaining to the PJM Interconnection, the regulatory body--in an unrelated action to the double counting initiative--has amended the rules in another area to allow for demand response to receive the same payment as generation resources in wholesale markets.

The change in the Federal Power Act applies to Regional Transmission Organizations and Independent System Operators that have the ability to balance supply and demand instead of calling on more generation. Those grid operators will have to pay the full market price, known as the locational marginal price, to demand response resources in real-time and day-ahead markets as long as dispatching DR is cost-effective.

“Our customers want to know, ‘What is the value of price-based demand response?’ FERC’s final ruling answers that question. It makes it much more attractive to participate in these types of programs,” said Gregg Dixon, Senior Vice President of Marketing and Sales at EnerNOC. “Going forward, we expect much greater interest in these offerings, from new and existing customers alike.”

While the changes brought cheers from curtailment service providers like EnerNOC, the adjustment will take a while to be put in place. Each RTO and ISO has to determine a price level at which demand response dispatch is cost-effective compared to generation. The tariff changes need to be established by July 22.

“This landmark decision is just the motivation needed to transform the market and empower customers, clearly validating EnergyConnect’s commitment and leadership in price-responsive demand,” Kevin R. Evans, President and CEO, EnergyConnect, said in a statement.

The final rule, however, did not come without heated debate. The Notice of Proposed Rulemaking received nearly 3,800 pages of comments debating demand response in the market, including whether the full LMP should be paid at all hours of the day and if a MW saved is truly the same as a MW generated. FERC ruled 'yes' on both accounts.

“Today’s final rule is about bringing benefits to consumers,” FERC Chairman Jon Wellinghoff said in a statement. “The approach to compensating demand response resources as we require here will help to provide more resource options for efficient and reliable system operation, encourage new entry and innovation in energy markets, and spur the deployment of new technologies. All of this contributes to just and reasonable rates.”

Besides the price thresholds that have to be filed by July, the grid operators must also put together studies that look at the requirements for and the effects of this ruling. The study results must be filed with FERC by September 21, 2012. Although DR providers acknowledge that the market won’t change overnight, it didn’t stop them from celebrating.

 “Although it may be hard to see the direct implications today,” said Audrey Zibelman, President and CEO of Viridity Energy, “in time we will see that this decision is as important as any in the Commission’s distinguished history, including the decision to open up the energy markets via open access.”

The congratulations weren’t only reserved for FERC, which certainly appears to have the back of demand response given the recent rulings. Many demand response companies also felt that this was confirmation of the maturation of the DR market as a whole.

“The new FERC rule is recognition of the critical role that demand response plays in our nation's energy mix," said R. Blake Young, President and CEO of Comverge. “Demand response can now formally take its place as an equally valuable resource for meeting consumer needs across our electricity grid.”

Let the negawatts flow.

Tags: comverge, demand response, dr, enernoc, iso, negawatts, pjm