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FERC must reduce barriers to energy market participation

It's time for regulators in 13 states to allow retail program participation in wholesale markets. And FERC could make it even easier.

What do large Walmart Supercenters have in common with small programmable thermostats? Both cannot participate in wholesale energy markets in 13 Midwest states. Regulators in these states fear their utilities will lose control over their customers by allowing Walmart to participate in Midwest energy markets. Permitting aggregators like Walmart and allowing aggregation of smart devices like Google Nest thermostats will reduce grid emergencies.

One of the common reasons for states like Minnesota to say no to aggregators of retail customers is the fear that regulated utilities would lose their customers. This fear is unfounded in states like Illinois that allow aggregators. The largest electric utility in Illinois, ComEd, does not own generation but owns the distribution system wires, and retail customers get a bill from their aggregator. More than a million residential customers in Illinois have switched to a Retail Electric Supplier, according to Plug In Illinois, a website administered by the Illinois Commerce Commission, the state energy regulator.

Another reason state regulators do not approve their utility’s retail program participation in wholesale markets is the fear of an industrial load curtailment in Minnesota for an emergency in North Dakota since both these states are lumped in a zone for capacity purposes. Again, this is not a legitimate fear because one of the benefits of participating in a market is the availability to tap into resources across multiple states. That’s why utilities in these states have united voluntarily to establish this market. States rely on each other for selling surplus capacity and buying deficient capacity when needed.

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What is true for generation capacity must be true for demand programs also.

Realizing the mistake with the 2011 demand response ruling, which was litigated at the US Supreme Court, the federal regulator did not give this opportunity for state regulators to “opt-out” of electric storage technologies in 2018 and distributed energy resources in 2020. That’s why it is time for the 13 states — Arkansas, Iowa, Indiana, Kentucky, Louisiana, Michigan, Minnesota, Missouri, Mississippi, North Carolina, North Dakota, South Dakota, and Wisconsin — to accept the writing on the energy markets wall and to “opt-in.”

Sean Casten, the Democratic Congressman from Illinois, introduced a bill in August called Responsive Energy Demand Unlocks Clean Energy, the REDUCE Act, to urge the Federal Energy Regulatory Commission to eliminate these states’ opt-out because FERC has not taken any action since opening an inquiry into the participation of aggregators in March 2021.

FERC should act now because the Midwest grid operator is falling short of capacity in the summer of 2023. This capacity deficiency, coupled with extreme weather, increases the chances of grid emergencies. But most of the solutions to address the potential grid emergencies are transmission-oriented. However, transmission cannot be built overnight, but demand flexibility can be. Even repairing large power equipment when damaged due to criminal activity takes time, as 40,000 North Carolina residents are finding out.

Before the start of summer, grid operators and the North American Electric Reliability Corporation warned about summer blackouts. California narrowly avoided the blackout this past September. The same authorities warned about winter blackouts. And in both seasons, the solutions proposed have a common theme – transmission – because only the transmission utilities have enough staff to attend the monthly meetings at grid operators and NERC.

Transmission lines outside Houston, Texas (Courtesy: BFS Man/Flickr)

Transmission takes more than a decade to build. But smart programmable technologies to reduce our demand are available now. Today most homes have smart devices like a Google Nest thermostat. These devices can aggregate and provide the homeowner with the capability to reduce demand during grid emergencies. Utilities in these 13 states want to control this aggregation capability.

Not everyone is concerned about utility control. The New York Independent System Operator is gearing up for Consolidated Edison retail programs to participate in NYISO wholesale markets starting next year. NYISO’s market enables ConEdison’s electricity consumers to earn money, similar to Airbnb, which enables a homeowner to earn a few bucks when they are out of town. Walmart’s Texas Retail Energy LLC is an NYISO market participant.

In conclusion, regulators in the 13 states must allow retail programs such as smart thermostats to meet their state’s capacity needs. These states can help their utilities manage grid emergencies as soon as the summer of 2023. The Feds must remove the decade-old flexibility afforded to states. Walmart and other aggregators must be allowed to operate in these 13 states.

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